A Guide to

Board Evaluation

BACKGROUNDER

JUNE 2017

PRICE : Rs. 200/- (Excluding Postage)

© THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

All rights reserved. No part of this publication may be translated or copied in any

form or by any means without the prior written permission of The Institute of

Company Secretaries of India.

ISBN : 9789382207-92-4

Published by :

THE INSTITUTE OF COMPANY SECRETARIES OF INDIA

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(ii)

PREFACE TO REVISED EDITION

The performance evaluation is best tool in enhancing the board’s

effectiveness is recognised globally. An effective performance

evaluation exercise helps the board, committees and individual

directors perform to their optimum capabilities. It improves

leadership/performance culture, clarifies differing directors’ roles,

improves board communication and facilitates board teamwork,

improves decision making processes and efficiency of board

operations, etc.

In India, the Companies Act, 2013 laid down greater emphasis on

good governance through the boards, board processes and enhancing

board’s effectiveness, and performance evaluation is one of them.

The performance evaluation is a qualitative factor certainly facilitates

transition from good to great boards which if implemented in true

letter and spirit would definitely take good governance in India to

greater heights.

In April 2015, the Institute released A Guide to Board Evaluation

based on the provisions of the Companies Act, 2013 and related

best corporate practices. The SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015 which came into existence later

in 2015, also contains detailed provisions on board evaluation. This

year, the SEBI has released a Guidance Note on Board Evaluation,

considering all these developments, this publication is being revised.

To facilitate the board performance evaluation, the Institute has

brought out this revised publication. This publication discusses the

need and importance of board evaluation, international trends, legal

framework in India, methodologies, steps involved, post-evaluation

activities and barriers to board evaluation. It also contains the

Parameters and Sample models for evaluation of Chairperson,

Managing Director, Executive Director, Non-executive director,

Independent Director, Board as whole and the Committees and also

provides guidance on how to conduct evaluation of Board. It also

contains Current Trends and Practices in India with respect to board

evaluation and analysis of Annual Reports of top 100 companies

listed on Bombay Stock Exchange.

I am confident that the publication will prove to be immensely

(ii )

beneficial in the Board evaluation process. I urge upon the corporates

and my professional colleagues to follow the principles, procedures

& practices as enunciated in this publication for performance

evaluation so as to promulgate good Corporate Governance.

I commend the dedicated efforts put in by CS Nishita Singhal,

Assistant Director in preparing the revised edition and CS Sudhir

Kumar Saklani, Research Associate in analysing the Annual Report

of top 100 companies and finalising the publication under the

guidance of CS Banu Dandona, Joint Director and under the

stewardship of CS Dinesh C. Arora, Secretary.

Improvement is a continuous process; therefore, I would appreciate

the users/ readers for offering their constructive suggestions/

comments for the improvement of this publication.

Place: New Delhi CS (Dr.) Shyam Agrawal

Date: 14th June 2017 President Institute of Company Secretaries of India

(iv)

PREFACE TO FIRST EDITION

“Everything that can be counted does not necessarily count;

everything that counts cannot necessarily be counted”

Albert Einstein

The duties of the Board defined under the Companies Act, 2013

clearly codifies that the director of a company shall act in good faith

in order to promote the objects of the company for the benefit of its

members as a whole, and in the best interests of the company, its

employees, the shareholders, the community and for the protection

of environment. This enhanced role of directors requires Boards to

be more engaged, more knowledgeable and more effective.

Board Evaluation is the most effective way to ensure Board members

understand their duties and to adopt effective good governance

practices. To be effective, boardroom appraisals need to have

specific, clearly defined steps and practices, and a special

commitment from the Board.

Board Evaluation as a good governance practice has found its place

in the Companies Act, 2013.This Handbook comprehensively captures

all the provisions relating to Board Evaluation in the Companies Act,

2013, Steps involved in Board Evaluation, Parameters and Sample

models for evaluation of Chairperson, Managing Director, Executive

Director, Non- executive director, Independent Director, Board as

whole and the Committees and also provides guidance on how to

conduct evaluation of Board.

I am confident that the publication will prove to be of immense benefit

to companies and professionals.

I place on record my sincere thanks to CS S. K Agrawala, Central

Council member, CS Ahalada Rao, Central Council member, Mr. N

Hariharan Vice President (Secretarial) & Company Secretary, Larsen

& Toubro Ltd for their valuable inputs in finalizing the hand book.

I commend the dedicated efforts put in by team ICSI led by CS Alka

Kapoor, Joint Secretary and comprising CS Banu Dandona, Deputy

Director, Mr. Chittaranjan Pal, CS Disha Kant, Assistant Education

(v)

Officers under the overall guidance of CS Sutanu Sinha, Chief

Executive & Officiating Secretary and leadership of CS Mamta Binani,

Vice President and CS Vineet Chaudhary, Central Council Member

and Chairman, Corporate Laws and Governance Committee.

In any publication, there is always scope for further improvement. I

would personally be grateful to users and readers for offering their

suggestions/comments for further refinement.

(CS Atul H Mehta)

Place: New Delhi

President

Date: 15-04-15

Institute of Company Secretaries of India

(vi)

INDEX

Introduction

1

•

Need for Board Evaluation

3

•

Potential Benefits of Board Evaluation

4

International Trends and Practices

6

•

Good Practices in Board Evaluation by IFC

7

•

G20/OECD Principles of Corporate Governance

10

•

ICGN Global Governance Principles

11

•

UK Corporate Governance Code 2016

12

•

ASX Corporate Governance Council -Australia

13

•

King IV Code of Governance for South Africa

14

•

Code of Corporate Governance, Singapore

16

•

Comparative table of Board Evaluation

in various countries

19

Legal Framework in India

24

•

Requirements under the Companies Act 2013

25

•

Provisions under the SEBI (Listing Obligations

and Disclosure Requirements) Regulations, 2015

28

•

Frequency of Board Evaluation

30

•

Snapshot of Indian Legislative Framework

31

Board Evaluation Methodologies

35

•

Internal Evaluation

36

•

Board Evaluation by External Agencies

39

(vi )

Broad Evaluation Framework and Parameters

42

•

Evaluation of the Board as a whole

42

•

Evaluation of the Committees

43

•

Evaluation of Individual Directors

44

•

Managing Director / Whole time Director/

Executive Director

44

•

Independent Directors

45

•

Non- executive Directors

45

•

Evaluation of the Chairperson

46

Post-Evaluation Activities

47

Succession Planning and Board Evaluation

48

Board Evaluation - Disclosure

49

Barriers to Board Evaluation

51

Board Evaluation - Current Trends and Practices in India 56

Sample Board Evaluation Policy

66

Annexures

69

SEBI’s Guidance Note on Board Evaluation

133

Bibiliography

151

(vii )

Introduction

“Board evaluation, if it is conducted in a rigorous manner, when

it flows on to and is linked with individual director development

plans and with board succession planning and when the results

are disclosed, is a valuable tool.”

Anne Molyneux, ICGN Board

Introduction

At the core of the corporate governance practices is the Board

of Directors which oversees how the management serves and

protects the long term interests of all the stakeholders of the

company. The institution of Board or directors was based on the

premise that a group of trustworthy and respectable people should

look after the interests of the large number of shareholders who are

not directly involved in the management of the company. The

shareholders and investors repose confidence on the Board of

Directors as their representatives for conducting and monitoring the

affairs of the company. The position of Board of Directors is that of

trust as the Board is entrusted with the responsibility to act in the

best interests of the company. The Board is accountable to the

shareholders for creating, protecting and enhancing wealth, ensuring

optimum utilisation of resources of the company, and reporting to

them on the performance in a timely and transparent manner. The

Board is ultimately responsible for ensuring compliance of various

applicable laws in the best interests of stakeholders.

The Board generally performs three major roles in a company –

•

provide direction (i.e. set the strategic direction of the

company)

•

control (i.e. monitor the management)

•

provide support and advice (advisory role).

1

2

A Guide to Board Evaluation

The aftermath of the global financial crisis and the controversies

surrounding the corporate landscape has brought the focus and

attention on the performance of the board as never before. The role

of the board of directors has undergone rapid transformation over

the past decade. Board evaluation has emerged as one of the

corporate governance priority in recent times globally. Corporate

governance practitioners have been applying Peter Drucker’s idea

that “what gets measured gets managed, and among senior leaders,

what gets acknowledged and valued gets done even better”.

Board evaluation typically examines these roles of the Board

and the entailing responsibilities, and assesses how effectively these

are fulfilled by the Board.

The “Review of the Role and Effective Functioning of Non-

Executive Directors” carried out under the chairmanship of Sir Derek

Higgs in 2003 (the Higgs Review) in U.K. for the first time noted the

importance of Board performance evaluation. It stated that it is ‘best

practice that the performance of the Board as a whole, of its

committees and of its members, is evaluated at least once a year’

and that companies should disclose in their annual report whether

such performance evaluation is taking place.

Board evaluation is a key means by which boards can recognize

and correct corporate governance problems and add real value to

their organizations. A properly conducted board evaluation can

contribute significantly to performance improvements on

organisational; board and individual member level. According to

Heidrick & Struggles Asia Pacific Corporate Governance Report 2014,

“Foundations and Building Blocks for High performing Boards”,

regular Board evaluation is the core driver necessary to promote

change and deliver best practice.

The stakeholders and investors are interested to know whether

the members of Board are effectively functioning individually and

collectively. The Board at many times requires new skills for promptly

responding to the dynamic changing business environment.

Performance measurement, against the set benchmarks, in the form

of Board evaluation has the potential to significantly enhance Board

effectiveness, maximize strengths, tackle weaknesses and improve

corporate relationships. Annual assessment is a powerful tool to

convert good boards into great boards.

A Guide to Board Evaluation

3

Need for Board Evaluation

Evaluation provides the board and its committees with the

opportunity to consider how group culture, cohesiveness,

composition, leadership, meetings information processes and

governance policies influence performance. Board Evaluation helps

to identify areas for potential adjustment and provides an opportunity

to remind directors of the importance of group dynamics and

effective board and committee processes in fulfilling board and

committee responsibilities.

Emphasis on evaluating board and committee performance is

appropriate given the collective nature of board and committee

decision-making authority. However, evaluation of individual directors

is also important as the foundation for effective collective decision-

making is the engagement and efforts of all individual directors.

Therefore, individual director assessment is also a valuable

complement to the board and committee evaluation process. Individual

evaluation encourages self-reflection and can help directors identify

and address individual behaviors that may improve group dynamics

and performance. In addition, formal evaluation of individual directors

can help support the re-nomination decision process.

Thus, Board evaluation contributes significantly to improved

performance at three levels - organizational, Board and individual

Board member level. It also improves the leadership, teamwork,

accountability, decision-making, communication and efficiency of the

board. A commitment to annual evaluation is powerful change agent.

The Board evaluation sets the standards of performance and

improves the culture of collective action by Board. Evaluation also

improves teamwork by creating better understating of Board

dynamics, board-management relations and thinking as a group

within the board. It helps to maximize board/ director contribution

by encouraging participation in meetings and highlighting the skill

gaps on the Board and those of individual members. Directors

demonstrate commitment to improvement, based on the feedback

provided on individual and collective skill gaps.

The purposes of the Board evaluation may be enumerated as

under:

•

Improving the performance of Board towards corporate goals

and objectives.

4

A Guide to Board Evaluation

•

Assessing the balance of skills, knowledge and experience

on the Board.

•

Identifying the areas of concern and areas to be focussed

for improvement.

•

Identifying and creating awareness about the role of Directors

individually and collectively as Board.

•

Building Team work among Board members.

•

Effective Coordination between Board and Management.

•

Overall growth of the organisation.

Potential Benefits of Board Evaluation

Benefits

To organisation

To board

To individual director

Leadershi p

• Sets the performance

• An effective

• Demonstrates

tone and culture of the

chairper son

commitment to

organi sation

utilising a

improvement at

• Role model for CEO

board evaluation

individual level

and senior manage-

demonstrates

ment team

leadership to the

rest of the board.

• Demonstrates

long-term focus of

the board

• Leadershi p

behaviours agreed

and encouraged

Role clarity

• Enables clear distinc-

• Clarifies director

• Clarifies duties of

tion between the roles

and committee

individual directors

of the CEO, manage-

rol es

ment and the board

• Sets a board norm

• Clarifies expectations

• Enables appropriate

for roles

delegation principles

Teamwork

• Builds board/CEO/

• Builds trust

• Encourages individual

manag ement

between board

director involvement

rel ationshi ps

member s

• Develops commitment

• Encourages active

and sense of ownership

partici pation

• Develops commitment

• Develops commit-

• Clarifies expectations

ment and sense of

ownership

Accounta-

• Improved stakeholder

• Focuses board

• Ensures directors

bil ity

relationships (e.g.

attention on

understand their legal

investors, financial

duties to stake-

duties and

markets)

hol der s

responsibili ti es

• Improved corporate

• Ensures board is

• Sets performance

governance standards

appropriately

expectations for

• Clarifies delegations

monitoring organi-

individual board

sati on

member s

A Guide to Board Evaluation

5

Benefits

To organisation

To board

To individual director

Decision-

• Clarifying strategic

• Clarifying strategic

• Identifies areas where

making

focus and corporate

focus

director’s skills need

goals

• Aids in the identifi-

development

• Improves organisa-

cation of skills gap

• Identifies areas where

tional decision-making

on the board

the director’s skills can

• Improves the

be better utilised

board’s decision-

making ability

Communi-

• Improves stakeholder

• Improves board-

• Builds personal

cati on

rel ationshi ps

manag ement

relationships between

• Improves board-

rel ationshi ps

individual directors

manag ement

• Builds trust

rel ationshi ps

between board

• Improved board-CEO

member s

rel ationshi ps

Board

• Ensures an

• More efficient

• Saves directors’ time

oper ations

appropriate top-level

meeti ng s

• Increases effective-

policy framework

• Better time

ness of individual

exists to guide the

manag ement

contributors

organi sation

***

International Trends and Practices

Over time, a board may become complacent or may need new

skills and perspectives to respond nimbly to changes in the

business environment or strategy. Regular and rigorous self-

evaluations help a board to assess its performance and identify

and address potential gaps in the boardroom.

(CII 2014)

A global trend is to require board evaluation, with the objective

of leading to better practices and board succession planning.

Regulators around the world have provided for board evaluation.

Several national codes or regulations require or expect board

evaluations and/or related disclosures, and in most countries it is a

recommended practice. Some countries have mandated an external,

independent board evaluation once every three years. However there

is no one-size-fits-all approach; there are many different ways for

countries and companies to approach evaluations.

Heidrick & Struggles published a report (Heidrick & Struggles

2014) that reviewed corporate governance data, including board

evaluation practices and reporting, from over 400 companies across

15 diverse European jurisdictions, reported that:

•

70% of boards surveyed undergo a performance evaluation

annually.

•

78% percent of boards were evaluated in the last two years,

up from 75 percent in 2009.

•

The board chairperson and/or the board members themselves

are responsible for the evaluation.

•

21% of entities use external consultants to facilitate the board

evaluation.

A study conducted by the Rock Center for Corporate Governance

6

A Guide to Board Evaluation

7

at Stanford University and the Miles Group titled ‘Board of Directors

Evaluation and Effectiveness’ in 2016 reveals that while board

evaluations are a common practice, they are not universal. Eighty

percent of companies conduct a formal evaluation; twenty percent

do not.

The study also reveals that board evaluations appear to be much

less effective at the individual level. Only half (55 percent) of

companies that conduct board evaluations evaluate individual

directors, and only one-third (36 percent) believe that their company

does a very good job of accurately assessing the performance of

individual directors. Boards appear not to be effective in using the

results of evaluations to improve individual performance. Only half

(52 percent) believe their board is very effective in dealing with

directors who are underperforming or exhibit poor behavior, while a

quarter (26 percent) do not.

To improve board functioning, it recommends the following:

1. Conduct a diagnostic where each director’s input is solicited

around a variety of critical topics: board effectiveness,

committee effectiveness, current board composition, the

forward-looking needs of the board to meet the strategic

needs of the enterprise, board structures and processes,

agendas and materials, board interface with management,

board succession process, and board leadership.

2. Provide a detailed report of the findings. Include

recommended actions based upon short, medium, and long-

term timeframes. Develop a skills-and-experience matrix to

assist with board refreshment efforts, individual director

coaching plans, and feedback sessions to provide directors

with more detailed feedback around their effectiveness.

3. Create a process that is as independent as possible. Identify

a point person on the board accountable for managing the

process and following through on its recommendations.

Develop a process for removing underperforming directors.

(1) Good Practices in Board Evaluation – International Finance

Corporation (IFC)

Some of the Good Practices in Board Evaluations as specifies in

IFC Report titled “From Companies to Markets — Global

8

A Guide to Board Evaluation

Developments in Corporate Governance”, 2015, are given below-

•

Evaluations will vary from company to company and within a

company at different times in the company’s development.

Evaluations should consider the specific context of the

company. Nevertheless, below are some recognized good

practices that are emerging:

•

Trust in the credibility and confidentiality of the evaluation

is a key factor for its success, regardless of who manages

the process (IFC 2011). Also, confidentiality and transparency

are critical to the process.

•

It is important to have board members’ full understanding of

and commitment to quality corporate governance and the

evaluation.

•

The goal of an evaluation is to improve the performance of

the board and the company itself.

•

Leadership of the evaluation process is key—usually led by

the chairperson.

•

Evaluations should be a regular feature of board practices.

Most companies undertaking board evaluations do so

annually; some companies, where they are not mandated

otherwise, may undertake an evaluation once every three

years.

•

Evaluations may be best completed in time for discussion at

the board strategy session, thus any actions may be

incorporated into the strategy.

•

Prior to an evaluation, all board members should know how

they will be assessed (that is, the topics for evaluation), the

process, and the way they will be measured.

•

Performance metrics should be developed over time.

•

Questionnaires, open discussion, and one-to-one discussions

are the most widely used approaches.

•

Questionnaires should be carefully drafted, probably in

collaboration with the chairperson, and reviewed by all those

being evaluated, prior to finalization.

•

Evaluations should cover key topics: board composition and

A Guide to Board Evaluation

9

structure, dynamics and functioning (including leadership and

teamwork), role clarity, governance of strategy and risk, board

accountability and oversight role, board decision making,

board advice role, individual characteristics of directors

(vision, contributions, behaviors, time availability, preparation,

particular skills), chairperson’s role, board functioning

(notices, meeting processes, proactivity), and

communication.

•

An evaluation of board committees should cover issues

pertinent to that particular committee.

•

Evaluation results should remain confidential and be

analyzed, distributed to board members, and discussed in

an open and non-confrontational manner.

•

Any evaluation should focus on the improvement of board

performance and thus should lead to the development of an

action plan to address issues arising.

•

The process itself should be reviewed for improvements.

•

Disclosure of the evaluation goals and process should be

communicated to shareholders in the annual report, included

in the company code of corporate governance, and placed

on the company website.

•

Board evaluations can be a sensitive issue to some people.

It is important to be aware of this possibility and to deal with

sensitivities.

•

Evaluations may expose board weaknesses that, if not

attended to, may provide information for a later litigation

process.

•

Safeguards should be built into the system to protect both

the company and individual directors.

•

It is essential for any independent evaluator to be experienced

in board evaluations, be seen to be independent and fair,

and be respected for his or her approach.

•

The evaluation may destroy board collegiality if it is not

handled well and if directors’ comments on peers are too

harsh or ill-considered.

10

A Guide to Board Evaluation

•

Careful consideration should take place before management

is included in the evaluation process. The presence of

management may constrain directors’ comments

(2) G20/OECD Principles of Corporate Governance

The revised/updated G20 Principles maintain many of the

recommendations from earlier versions as continuing essential

components of an effective corporate governance framework.

The chapter on the responsibilities of the board provides for a

new principle recommending board training and evaluation and

a recommendation on considering the establishment of

specialized board committees in areas such as remuneration,

audit and risk management.

In the 2004 version of the OECD Principles, there was little

reference to board evaluations, and only as a voluntary,

recommended practice. In the intervening 11 years to 2015,

pressure built for board evaluations to become the norm. The

revised Principles make it clear that board evaluation is a way to

ensure continual board development, with the goal of achieving

an independent board capable of objective judgment. Board

evaluation is now a corporate governance priority.

OECD Principle VI.E.4 as Revised in 2015 provides:

Boards should regularly carry out evaluations to appraise their

performance and assess whether they possess the right mix of

background and competences.

In order to improve board practices and the performance of its

members, an increasing number of jurisdictions now encourage

companies to engage in board training and voluntary board

evaluation that meet the needs of the individual company.

Particularly in large companies, board evaluation can be

supported by external facilitators to increase objectivity. Unless

certain qualifications are required, such as for financial

institutions, this might include that board members acquire

appropriate skills upon appointment. Thereafter, board members

may remain abreast of relevant new laws, regulations, and

changing commercial and other risks through in-house training

and external courses. In order to avoid groupthink and bring a

diversity of thought to board discussion, boards should also

A Guide to Board Evaluation

11

consider if they collectively possess the right mix of background

and competences.

Countries may wish to consider measures such as voluntary

targets, disclosure requirements, boardroom quotas, and private

initiatives that enhance gender diversity on boards and in senior

management.

(3) ICGN Global Governance Principles

The ICGN Global Governance Principles describe the

responsibilities of boards and shareholders respectively and aim

to enhance dialogue between the two parties. The Principles

apply predominantly to publicly listed companies and set out

expectations around corporate governance issues that are most

likely to influence investment decision-making. They are also

relevant to non-listed companies which aspire to adopt high

standards of corporate governance practice. The Principles are

relevant to all types of board structure including one-tier and

two-tier arrangements.

— The ICGN Global Governance principles provides for the

following responsibilities of the board:

•

The Board should ensure a formal, fair and transparent

process for nomination, election and evaluation of

directors;

•

The Board should conduct an objective board evaluation

on a regular basis, consistently seeking to enhance board

effectiveness.

— It also provides that the nomination committee should

evaluate the process for a rigorous review of the performance

of the board, the company secretary (where such a position

exists), the board’s committees and individual directors prior

to being proposed for re-election.

— The board should also periodically (preferably every three

years) engage an independent outside consultant to

undertake the evaluation.

— The non-executive directors, led by the lead independent

director, should be responsible for performance evaluation of

the chair, taking into account the views of executive officers.

12

A Guide to Board Evaluation

— The board should disclose the process for evaluation and, as

far as reasonably possible, any material issues of relevance

arising from the conclusions and any action taken as a

consequence.

— The Nomination committee should be responsible for the

appointment of independent consultants for recruitment or

evaluation including their selection and terms of engagement

and publically disclosing their identity and consulting fees.

(4) UK Corporate Governance Code 2016

The first version of the UK Corporate Governance Code (the Code)

was framed in 1992 by the Cadbury Committee. The

recommendations in the Cadbury Report have been added to at

regular intervals since 1992. In 2003 the Code was updated to

incorporate recommendations from reports on the role of non-

executive directors and the role of the audit committee.

In 2016, a revised version of the UK Corporate Governance Code

was published containing guidance on risk management and

internal controls, remuneration policies and engagement with

shareholders etc.

The revised Code provides that for board effectiveness it is

required that the board should undertake a formal and rigorous

annual evaluation of its own performance and that of its

committees and individual directors.

Supporting Principles

Evaluation of the board should consider the balance of skills,

experience, independence and knowledge of the company on

the board, its diversity, including gender, how the board works

together as a unit, and other factors relevant to its effectiveness.

The chairman should act on the results of the performance

evaluation by recognising the strengths and addressing the

weaknesses of the board and, where appropriate, proposing new

members be appointed to the board or seeking the resignation

of directors.

Individual evaluation should aim to show whether each director

continues to contribute effectively and to demonstrate

commitment to the role (including commitment of time for board

and committee meetings and any other duties).

A Guide to Board Evaluation

13

Code Provisions

B.6.1. The board should state in the annual report how

performance evaluation of the board, its committees and its

individual directors has been conducted.

B.6.2. Evaluation of the board of FTSE 350 companies should be

externally facilitated at least every three years. The external

facilitator should be identified in the annual report and a

statement made as to whether they have any other connection

with the company.

B.6.3. The non-executive directors, led by the senior independent

director, should be responsible for performance evaluation of

the chairman, taking into account the views of executive directors.

(5) ASX Corporate Governance Council - Australia

The ASX Corporate Governance Council Principles and

Recommendations were initially introduced in 2003 and

subsequent revisions were made in 2007 and 2010. As a result

of the events that occurred both before and during the Global

Financial Crisis, a number of jurisdictions adopted new legislation

to tighten corporate governance codes. Australia also

comprehensively reviewed and released the third edition of the

Principles and Recommendations in 2014.

Principle 1: Lay solid foundations for management and

oversight

A listed entity should establish and disclose the respective roles

and responsibilities of its board and management and how their

performance is monitored and evaluated.

Recommendation 1.6 : A listed entity should: (a) have and

disclose a process for periodically evaluating the performance

of the board, its committees and individual directors; and (b)

disclose, in relation to each reporting period, whether a

performance evaluation was undertaken in the reporting period

in accordance with that process. Commentary The board performs

a pivotal role in the governance framework of a listed entity. It is

essential that the board has in place a formal and rigorous

process for regularly reviewing the performance of the board,

its committees and individual directors and addressing any issues

14

A Guide to Board Evaluation

that may emerge from that review. The board should consider

periodically using external facilitators to conduct its performance

reviews. A suitable non-executive director (such as the deputy

chair or the senior independent director, if the entity has one),

should be responsible for the performance evaluation of the chair,

after having canvassed the views of the other directors. When

disclosing whether a performance evaluation has been

undertaken the entity should, where appropriate, also disclose

any insights it has gained from the evaluation and any governance

changes it has made as a result.

Recommendation 1.7 : A listed entity should: (a) have and

disclose a process for periodically evaluating the performance

of its senior executives; and (b) disclose, in relation to each

reporting period, whether a performance evaluation was

undertaken in the reporting period in accordance with that

process. Commentary The performance of a listed entity’s senior

management team will usually drive the performance of the entity.

It is essential that a listed entity has in place a formal and

rigorous process for regularly reviewing the performance of its

senior executives and addressing any issues that may emerge

from that review.

Principle 2: Structure the board to add value

A listed entity should have a board of an appropriate size,

composition, skills and commitment to enable it to discharge its

duties effectively

The role of the nomination committee is usually to review and

make recommendations to the board in relation to the process for

recruiting a new director, including evaluating the balance of skills,

knowledge, experience, independence and diversity on the board

and, in the light of this evaluation, preparing a description of the

role and capabilities required for a particular appointment.

(6) King IV Code of Governance, South Africa

The King Committee published the King IV Report on Corporate

Governance for South Africa 2016 (King IV) on 1 November 2016.

King IV is effective in respect of financial years commencing on

or after 1 April 2017. King IV replaces King III in its entirety.

While King III called on companies to apply or explain, King IV

A Guide to Board Evaluation

15

assumes application of all principles, and requires entities to

explain how the principles are applied – thus, apply and explain.

King IV is principle- and outcomes-based rather than rules-based.

The focus is on transparency and targeted, well-considered

disclosures. King IV recognises information in isolation of

technology as a corporate asset that is part of the company’s

stock of intellectual capital and confirms the need for governance

structures to protect and enhance this asset. There is a new

emphasis on the roles and responsibilities of stakeholder.

King III recommended that an evaluation of the governing body,

its committees and its individual members be conducted every

year. To provide for sufficient time to appropriately respond to

the results of such performance evaluations, the King IV Code

recommends for a formal evaluation process to be conducted at

least every two years. Every alternate year, the governing body

should schedule an opportunity for consideration, reflection and

discussion of its performance.

Evaluations of the performance of the governing body

Governing body’s primary governance role and responsibilities:

Principle 9: The governing body should ensure that the

evaluation of its own performance and that of its committees,

its chair and its individual members, support continued

improvement in its performance and effectiveness.

Recommended Practices

•

The governing body should assume responsibility for the

evaluation of its own performance and that of its committees,

its chair and its individual members by determining how it

should be approached and conducted.

•

The governing body should appoint an independent non-

executive member to lead the evaluation of the chair’s

performance if a lead independent is not in place.

•

A formal process, either externally facilitated or not in

accordance with methodology approved by the governing

body, should be followed for evaluating the performance of

the governing body, its committees, its chair and its individual

members at least every two years.

16

A Guide to Board Evaluation

•

Every alternate year, the governing body should schedule in

its yearly work plan an opportunity for consideration,

reflection and discussion of its performance and that of its

committees, its chair and its members as a whole.

•

The following should be disclosed in relation to the evaluation

of the performance of the governing body:

— A description of the performance evaluations undertaken

during the reporting period, including their scope, whether

they were formal or informal, and whether they were

externally facilitated or not.

— An overview of the evaluation results and remedial

actions taken.

— Whether the governing body is satisfied that the

evaluation process is improving its performance and

effectiveness

(7) Code of Corporate Governance, Singapore

The Code of Corporate Governance, Singapore was first issued

by the Corporate Governance Committee in 2001. The Code is

not mandatory but listed companies are required under the

Singapore Exchange Listing Rules to disclose their corporate

governance practices and give explanations for deviations from

the Code in their annual reports.

The Council on Corporate Disclosure and Governance initiated a

review of the Code in May 2004. A revised Code was issued on

July 2005.

The Code of Corporate Governance came under the purview of

Monetary Authority of Singapore (MAS) and Singapore Exchange

(SGX) with effect from 1st September 2007 to clarify and

streamline responsibilities for corporate governance matters for

listed companies, bringing it under the sectoral regulator.

The Corporate Governance Council conducted a comprehensive

review of the Code, and submitted its recommendations to MAS

in 2011.

MAS issued a revised Code of Corporate Governance on May

2012. The 2012 Code of Corporate Governance superseded and

A Guide to Board Evaluation

17

replaced the Code that was issued in July 2005. The Code was

effective in respect of Annual Reports relating to financial years

commencing from 1 November 2012.

The Singapore Corporate Governance Code of May 2012 included

for the first time a requirement that boards conduct a formal

assessment of their effectiveness.

Principle 5 on Board Performance: There should be a formal

annual assessment of the effectiveness of the Board as a whole

and its board committees and the contribution by each director

to the effectiveness of the Board.

Guidelines

5.1 Every Board should implement a process to be carried out by

the Nomination Committee for assessing the effectiveness

of the Board as a whole and its board committees and for

assessing the contribution by the Chairman and each

individual director to the effectiveness of the Board. The

Board should state in the company's Annual Report how the

assessment of the Board, its board committees and each

director has been conducted. If an external facilitator has

been used, the Board should disclose in the company's Annual

Report whether the external facilitator has any other

connection with the company or any of its directors. This

assessment process should be disclosed in the company's

Annual Report.

5.2 The Nomination Committee should decide how the Board's

performance may be evaluated and propose objective

performance criteria. Such performance criteria, which allow

for comparison with industry peers, should be approved by

the Board and address how the Board has enhanced long-

term shareholder value. These performance criteria should

not be changed from year to year, and where circumstances

deem it necessary for any of the criteria to be changed, the

onus should be on the Board to justify this decision.

5.3 Individual evaluation should aim to assess whether each

director continues to contribute effectively and demonstrate

commitment to the role (including commitment of time for

meetings of the Board and board committees, and any other

18

A Guide to Board Evaluation

duties). The Chairman should act on the results of the

performance evaluation, and, in consultation with the

Nomination Committee, propose, where appropriate, new

members to be appointed to the Board or seek the resignation

of directors.

***

A

COMPARATIVE TABLE OF BOARD EVALUATION IN VARIOUS COUNTRIES

Guide t

UK

USA

SOUTH AFRICA

AUSTRALIA

SINGAPORE

o B

(NYSE Corporate

oard

Governance

Ev

Guidelines)

aluat

Internal

and

i

MODE

Annual

self- Internal

and

External facilitators Internal and

on

External facilitated

evaluation

External evaluation is recommended

External

evaluation

(chairman or an

evaluation

i n d e p e n d e n t

provider.)

EVALUATION OF

The board should

An annual self- The evaluation of

The board has in place There should be

INDIVIDUAL

undertake a formal

evaluation of the the

individual

a formal and rigorous a formal annual

DIRECTOR

and rigorous annual

performance of the directors should be

process for regularly assessment of

evaluation of its

board of directors performed every

reviewing

the the effective-

individual directors.

and its committees. year.

performance of the ness of the

board, its committees contribution by

The nomination for

and

individual each director to

the

re-

directors

and the effective-

appointment of a

addressing any issues ness of the

director should only

that may emerge from Board.

occur after the

that review.

19

evaluation of the

20

Individual evalua-

performance and

Individual eva-

tion should aim to

attendance of the

luation should

show whether each

director.

aim to assess

director continues

whether each

to

contri-bute

d i r e c t o r

effectively and to

continues to

d e m o n s t r a t e

c o n t r i b u t e

commitment to the

effectively and

role.

d e m o n s t r a t e

commitment to

the

role

( i n c l u d i n g

commitment of

time

for

meetings of the

Board

and A

b

o

a

r

d Gui

c o m m i t t e e s , de

and any other to

duties)

Board

The evaluation of

EVALUATION OF

The board should

There should be E

-do-

-do-

v

the board should

a

undertake a formal

a formal annual l

BOARD

ua

be performed every

assessment of the t

and rigorous annual

ion

evaluation of its

year.

ef fe ctiv en es s

A

ow n

pe rfo r-

The

results

of

of the Board as Gu

mance.

performance eva-

a whole.

ide

luations

should

to

Evaluation of the

If an external

identify training

Bo

board of FTSE 350

facilitator has a

needs for directors.

rd

companies should

been used, the Ev

be

externally

Board should alu

facilitated at least

disclose in the atio

every three years.

c o m p a n y ’ s n

Annual Report

whether

the

external facili-

tator has any

other connec-

tion with the

company or any

of its directors.

EVALUATION OF

The board should -do-

The evaluation of -do-

There should be

undertake a formal

the

board

BOARD

a formal annual

and rigorous annual

committees should

COMMITTEES

assessment of

evaluation of its

be performed every

the effective-

committees.

year.

ness of the board 21

committees.

22

Nothing

specific

EVALUATION OF

The non-executive Nothing Specific

Chairman’s ability to A suitable non-

CHAIRMAN

directors, led by the

add value, and his executive director

senior independent

p e r f o r m a n c e (such as the deputy

director, should be

against what is chair or the senior

responsible

for

expected of his role i n d e p e n d e n t

p e r f o r m a n c e

and

function, director, if the

evaluation of the

should be assessed entity has one),

chairman, taking

every year.

should

be

into account the

responsible for the

views of executive

p e r f o r m a n c e

directors.

evaluation of the

chair, after having

canvassed

the

A

views of the other

Gu

directors.

ide

The board should

An overview of the A listed entity T

h

e t

The results of the

o

should:

N o m i n a t i o n B

DISCLOSURES

state in the annual self evaluation are appraisal process,

oa

report

how

results and action (a) have

and C o m m i t t e e r

not

disclosed

d

should decide E

performance eva- publicly.

plans should be

disclose

a

va

how the Board’s l

luation of the board

disclosed in the

process

for

uat

p e r i o d i c a l l y p e r f o r m a n c e i

has been conducted.

integrated report.

on

evaluating the may

be

A

the

perfor- evaluated and Gu

mance of the propose objec- ide

board,

its tive

perfor- to

committees and mance criteria.

Boa

individual direc-

r

The

Board d

tors; and

E

should state in valu

(b) disclose,

in the company’s ati

relation to each Annual Report on

r e p o r t i n g how its assess-

period, whether ment has been

a performance conducted.

evaluation was There should be a

undertaken in formal annual

the reporting assessment of the

period in accor- effectiveness of

dance with that the contri-bution

process.

by each director to

the Board. The

Board should state

in the company’s

Annual Report

how its assess-

ment has been 2

conducted.

3

Legal Framework in India

In India the Companies Act, 2013 has introduced a slew of

regulations focussed towards enhancing overall governance

standards. Effective stewardship by the board has been amplified

as one of the important cornerstones in the various requirements

specified under the new Act.

The Companies Act, 2013 for the first time codifies the duties of

directors, and specifies that the director of a company shall act in

accordance with the articles of the company and also provides

following mandate to the directors -

•

A director of a company shall act in good faith in order to

promote the objects of the company for the benefit of its

members as a whole, and in the best interests of the

company, its employees, the shareholders, community and

for the protection of environment.

•

A director of a company shall exercise his duties with due

and reasonable care, skill and diligence and shall exercise

independent judgment.

•

A director of a company shall not involve in a situation in

which he may have a direct or indirect interest that conflicts,

or possibly may conflict, with the interest of the company.

•

A director of a company shall not achieve or attempt to

achieve any undue gain or advantage either to himself or to

his relatives, partners, or associates and if such director is

found guilty of making any undue gain, he shall be liable to

pay an amount equal to that gain to the company.

•

A director of a company shall not assign his office and any

assignment so made shall be void.

Several other measures for increasing board effectiveness like

24

A Guide to Board Evaluation

25

performance evaluation of board of directors; training of independent

directors, guidelines for remuneration of directors has been specified.

Board evaluation, until recently, was recognised as a good

corporate governance practice and largely undertaken voluntarily.

The erstwhile Clause 49 of the Listing Agreement as a non-mandatory

requirement, provided for performance evaluation of non-executive

directors by a peer group. Further, the Corporate Governance

Voluntary Guidelines 2009 recommended that the Board should

undertake a formal and rigorous evaluation of its own performance

and that of its committee and individual directors. A few progressive

companies however had been pursuing Board evaluation (and in

some instances even peer evaluation of directors) voluntarily as they

believed in its usefulness. In all these voluntary cases, the evaluation

was led by the Chairperson and the assistance of independent

external experts was seldom sought. However, the Companies Act,

2013 has introduced mandatory provisions for board evaluation in

India. The Clause 49 of listing agreement which was revised in 2014

mandates performance evaluation of Independent Directors.

Currently legal provisions for board evaluation are provided under

the Companies Act, 2013 and the SEBI (Listing Obligations and

Disclosure Requirements) Regulations, 2015 for all listed entities.

Requirements under the Companies Act, 2013

1. Disclosure requirement in the Board’s Report on Performance

Evaluation

Section 134 (3) (p) read with Sub-rule (4) of Rule 8 of the

Companies (Accounts) Rules, 2014 : Every listed company and

every other public company having paid-up share capital of twenty

five crores or more calculated at the end of the preceding financial

year should include in the report by its Board of Directors, a

statement indicating the manner in which formal annual

evaluation has been made by the Board of its own performance

and that of its committees and individual directors.

However, the Ministry of Corporate Affairs vide Notification No.

G.S.R. 463(E) dated 5-6-2015 provided certain exemption to

Government Companies. Accordingly, the provisions of Section

134(3)(p) does not apply in case the directors are evaluated by

the Ministry or Department of the Central Government which is

26

A Guide to Board Evaluation

administratively in charge of the company, or, as the case may

be, the State Government, as per its own evaluation methodology.

However, keeping the importance of performance evaluation, the

Department of Public Enterprises (DPE) has designed a format

and laid down a procedure for filling up and evaluation of the

Director’s performance.

Thus, the Board of every listed company and every other

public company having paid- up share capital of twenty

five crores or more calculated at the end of the preceding

financial year except Government Companies has to do

formal annual evaluation of the-

•

board

•

its committees and

•

all individual directors.

The Board’s report of such companies must include a

statement indicating the manner & criteria of formal Board

Evaluation.

2. The Role of the Nominations and Remuneration Committee

in Performance Evaluation of Directors

Section 178 (1) read with Rule 6 of the Companies (Meetings of

Board and its Powers) Rules, 2014 : The Board of Directors of

every listed company and all public companies with a paid up

capital of ten crore rupees or more; or having turnover of one

hundred crore rupees or more; or having in aggregate,

outstanding loans or borrowings or debentures or deposits

exceeding fifty crore rupees or more shall constitute the

Nomination and Remuneration Committee consisting of three or

more non-executive directors out of which not less than one-

half shall be independent directors.

Provided that the chairperson of the company (whether executive

or non-executive) may be appointed as a member of the

Nomination and Remuneration Committee but shall not chair

such Committee.

Further, the Companies (Amendment) Bill, 2016 has proposed to

apply the section to public listed companies.

A Guide to Board Evaluation

27

Section 178 (2) : The Nomination and Remuneration Committee

shall identify persons who are qualified to become directors and

who may be appointed in senior management in accordance with

the criteria laid down, recommend to the Board their appointment

and removal and shall carry out evaluation of every director’s

performance.

Further, the Companies Amendment Bill, 2016 has proposed that

the Committee shall specify the manner for effective evaluation

of performance of Board, its committees and individual directors

to be carried out either by the Board, by the Nomination and

Remuneration Committee or by an independent external agency

and review its implementation and compliance.

Section 178 is not applicable to a company to which a licence

is granted under the provisions of Section 8 of the Companies

Act, 2013 (Notification No. GSR 466(E), dated 05-06-2015).

Section 178(2) is not applicable to Government Companies

except with regard to appointment of senior management &

other employees (Notification No. GSR 463(E), dated 05-06-

2015).

Therefore, the Nomination and Remuneration Committee

of every listed company and all public companies with a

paid up capital of ten crore rupees or more; or having

turnover of one hundred crore rupees or more; or having

in aggregate, outstanding loans or borrowings or

debentures or deposits exceeding fifty crore rupees or

more except Section 8 Companies and Government

Companies shall formulate criteria for evaluation of

performance of independent directors and the board of

directors.

Note : The paid up share capital or turnover or outstanding

loans, or borrowings or debentures or deposits, as the

case may be, as existing on the date of last audited

Financial Statements shall be taken into account.

3. Independent Directors’ Role in Performance Evaluation of

Boards, Non-independent Directors and Chairperson

Section 149(8) of the Act provides that the company and

28

A Guide to Board Evaluation

independent directors’ shall abide by the provisions specified in

Schedule IV.

Schedule IV (Part II (2)) : Independent directors are required to

bring an objective view in the evaluation of the performance of

board and management.

Schedule IV (Part VII) : The independent directors are required to

hold at least one meeting in a year, without the attendance of

non-independent directors and members of the management and

in that meeting they are required to review the performance of

•

the non-independent directors and the Board as whole;

•

also review the performance of the Chairperson of the

company, taking into account the views of the executive and

non-executive directors; and

•

assess the quality, quantity and timeliness of flow of

information between the company management and the

Board that is necessary for the Board to effectively and

reasonably perform their duties.

4. Performance Evaluation of Independent Directors

Schedule IV Part V : Re appointment - The reappointment of the

independent directors would be based on their report of

performance evaluation.

Schedule IV Part VIII: Evaluation mechanism

The performance of the independent directors would have to be

done by the entire Board excluding the director to be evaluated.

On the basis of the report of performance evaluation, the

continuance or extension of the term of appointment of the

independent director would be determined.

Requirements under the SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015

SEBI with a view to consolidate and streamline the provisions of

existing listing agreements for different segments of the capital

market and to align the provision relating to listed entities with the

Companies Act 2013, notified the SEBI (LODR) Regulations, 2015.

The regulations are applicable to all listed entities. It also requires

A Guide to Board Evaluation

29

Boards to conduct an annual performance evaluation and its

disclosure in the annual report through the following provisions:

1. Regulation (4) (2) (f) (ii) (9)

The Key functions of the board of directors includes -

•

Monitoring and reviewing board of director’s evaluation

framework.

2. Regulation 17(10) mandates that entire board of directors

shall do the performance evaluation of independent directors,

provided that in the evaluation process, the directors who

are subject to evaluation shall not participate.

3. Regulation 19(4) provides that the Nomination &

Remuneration Committee shall lay down the evaluation

criteria for performance evaluation of Independent Directors.

4. Regulation 25(3) provides that the independent directors of

the listed entity shall hold at least one meeting in a year,

without the presence of non-independent directors and

members of the management and all the independent

directors shall strive to be present at such meeting.

5. Regulation 25(4) provides that the independent directors in

the meeting referred in sub-regulation (3) shall, inter alia-

(a) review the performance of non-independent directors and

the board of directors as a whole;

(b) review the performance of the chairperson of the listed

entity, taking into account the views of executive

directors and non-executive directors.

6. Part D(A) - Role of Nomination and Remuneration

Committee

It provides that the role of committee shall, inter alia, include

the following:

•

formulation of criteria for evaluation of performance of

independent directors and the board of directors;

•

whether to extend or continue the term of appointment

of the independent director, on the basis of the report of

performance evaluation of independent directors.

30

A Guide to Board Evaluation

7. Schedule V C (d) - Corporate Governance Report

The following disclosures shall be made in the section on

the corporate governance of the annual report under the head-

Nomination and Remuneration Committee -

•

Performance evaluation criteria for independent

directors.

The SEBI has released a Guidance Note on Board Evaluation,

same is given at the end of this publication.

Frequency of Board Evaluation

Section 134(3)(p) provides that there has to be a formal annual

evaluation of Board of its own performance and that of its committees

and individual directors. The Company may undertake annual

evaluation either in accordance with calendar year or financial year,

as there is no clarity on this. Ideally, the same should be as per

financial year.

***

A

Snap Shot of Indian Legislative Framework

Guide t

Board of Directors and Evaluation

o Board E

Source

Particulars

Board’s Role in evaluation

Remarks

valuatio

Companies Act-Section 134(3)(p) Evaluation to be done by the Has to do formal annual

Board overall evaluation

n

& Listing Regulations

entire Board

evaluation of its own performance

Has to do formal annual

Evaluation of Committees

evaluation of its Committees

Has to do formal annual evaluation

Evaluation of individual directors

of all the individual directors

Has to do performance evaluation

The said evaluation will be the basis

of Independent Director’s (excluding

for continuation of the extension/

the director being evaluated)

the term of the Independent

Director.

Companies Act- Section 134(3)(p) Disclosure

Board’s Report

All the listed companies and public

read with Rule 8 of companies

companies with paid-up share

(Accounts) Rules 2014

capital of Rs. Twenty Five crore or

more shall have to include such a

statement in Board Report

indicating the manner & criteria of

31

formal Board evaluation.

32

Nomination Committee and Evaluation

Source

Particulars

Committee’s Role in evaluation

Remarks

Listing Regulations

Nomination & Remuneration

Shall lay down the evaluation criteria The evaluation criteria for Indepen-

Committee (NRC)

for performance evaluation of Inde-

dent Directors shall be prepared by

pendent Directors

NRC.

(This criteria is also required to be

disclosed in the Annual Report of

the Company)

Companies Act-

Evaluate every director’s

Evaluation of directors include:

section 178(2)

performance

a.

Independent directors

b.

Non executive directors

c.

Executive directors and whole

time directors

d.

Managing Directors

A G

e.

Chairperson

uide to Board Evaluation

A

Role and functions of Independent Directors in relation to evaluation

Guide

Source

Particulars

Independent Directors’

Remarks

to

Role in evaluation

Boar

Companies Act - Schedule IV-

In the separate meeting of Inde-

Review the performance

Review of:

d E

Code for ID (Part VII) &

pendent Directors

of Non-Independent Directors

valu

Listing Regulations

a.

Non executive directors

at

b.

Managing Director, whole time

ion

directors and Executive

directors

Review the performance of the

Review the performance of the

Board as a whole

Board as a whole.

Review the performance of the

Review the performance of the

Chairperson of the Company,

Chairperson.

taking into account the views

of Executive Director’s and

Non executive director’s

Assess the:

a.

quality

b.

quantity and

c.

timeliness

of flow of informationbetween

Quality of information includes

3

the Company management and

its relevance, completeness,

3

34

the Board, that is necessary

authenticity, how comprehensive,

for the Board to effectively and

concise and clear such infor-

reasonably perform their duties. mation is. As regards quantity, the

independent director need to assess

that the information is neither too

less nor too much resulting in an

information overload. Typically the

information to the board members

should carry an executive summary

which is supplemented by detailed

notes and where necessary back-up

papers as annexure. Timeliness of

information flow can be gauged

from facts such as how soon are

important events communicated

between board meetings, timeliness

of the agenda papers, etc.

A Guide to Board Evaluation

Board Evaluation Methodologies

The Companies Act, 2013 or SEBI (Listing Obligations and

Disclosure Requirements) Regulations, 2015 are silent on how the

Board evaluation is to be undertaken. The Companies Amendment

Bill, 2016 has proposed that the Nomination and Remuneration

Committee shall specify the manner for effective evaluation of

performance of Board, its committees and individual directors to be

carried out either by the Board, by the Nomination and Remuneration

Committee or by an independent external agency and review its

implementation and compliance.

Companies should ensure that the process for evaluation of the

board, committees and directors should be developmental rather

than just a compliance exercise. Doing just bare minimum of

compliance would mean squandering the opportunity of genuinely

improving the work of the Board.

Typically, the Board evaluation process should comprise of both

assessment and review. This would include analysis of how the Board

and its committees are functioning, the time spent by the Board considering

matters and whether the terms of reference of the Board committees

have been met, besides compliance of the provisions of the Act.

Generally Board appraisals include following components:

1. Evaluation of the Board as a whole

a. Internally

b. Externally

2. Evaluation of Individual Directors (Independent, Executive,

Non- executive, Whole Time Director)

a. Self evaluation

b. Peer to Peer evaluation

c. External

35

36

A Guide to Board Evaluation

3. Evaluation of the Committees

a. Internal (by the Board)

b. External

4. Evaluation of the Chairperson

a. All Directors

b. External

Board Evaluation can either be done internally or through external

agencies. These are elaborated below-

Board Evaluation

can be done

Internally

Through External

Agencies

Internal Evaluation

In case of internal evaluation, the Board of the company is

responsible for managing both the process as well as the content.

While evaluation processes should be tailored to the specific needs

and objectives of a company, some of the common elements for

effective evaluation includes following.

(a) Delegation of authority : The company should delegate the

Nomination and Remuneration Committee and/or the lead

director or independent chairman, the task of developing and

implementing an evaluation process for the entire board,

committees and individual directors.

(b) Defining the objectives : The objective of the evaluation

should be defined with some specificity. Boards should ask

the following key questions to define the objectives of

evaluation -

•

Is the evaluation being undertaken simply to comply with

laws and best practice?

•

Are there specific areas that require close attention?

•

Have there been significant changes on the Board that

A Guide to Board Evaluation

37

increase interest in working on board culture and

alignment with management?

•

Are there any underlying concerns about how the board

is functioning?

•

What would be considered a successful outcome?

•

Are there sensitivities about exploring certain areas and,

if so, why?

(c) Determining the scope : The defined objective will help to

determine the scope of the board evaluation, both as to who

will be the subject of the evaluation and the topics that

should be addressed for each like – Board, Committees and

individual directors.

(d) Identifying the participants : The participants for the Board

Evaluation process would generally include - directors for

board evaluation; committee members for committee

evaluation and all individual directors and independent

directors also. Individual directors may be asked to self-

assess or they may be asked to assess their peers. In addition,

key members of management may be invited to participate.

(e) Selecting the tools : The evaluation process typically involves

obtaining viewpoints from the Board members on the

functioning of Board, Committee or director performance

through the use of Questionnaires or Interviews or Facilitated

Discussions. While selecting the tools, the Company should

also keep in mind the culture of the organisation and assure

that the process helps to build trust among participants.

•

Questionnaires: Questionnaires are the most common

method for facilitating board evaluation in India. These

provide an efficient means of obtaining viewpoints while

allowing for confidentiality. However, they may not elicit

a full explanation of a particular point of view. Typical

the questionnaires include questions that can be

answered with standardized responses, as well as open-

ended questions and areas for comment.

•

Interviews : Interviews may also be conducted to explore

viewpoints of the participants in detail. It is more time

38

A Guide to Board Evaluation

consuming but provides the opportunity for in-depth

discussions. Questions are typically open-ended and the

interviewer can explore issues raised in detail.

•

Facilitated discussion : This provides the opportunity for

directors and committee members to share viewpoints

and discuss potential modifications to governance

practices in response to concerns and reach consensus.

Facilitated discussion helps to streamline the entire

process.

These methods can also be combined. For example, a survey

or an interview may be used to obtain information in a

manner that protects confidences, followed by a facilitated

discussion, or a survey may be sent out, followed by brief

interviews and culminating in a facilitated discussion. The

defined objective will help determine the topics that are

covered in the evaluation. To keep the evaluation fresh, both

the process for obtaining input and the specific questions

should be changed from time to time.

A comparative analysis of the three Approaches to Board

Evaluation is presented as under –

Quantitative:

Qualitative:

Qualitative: Facilitated

Questionnaires

Interviews

discussion/ Group self-

assessment

Description Board members

One-on-one

Trained facilitator leads

complete a written

interviews are

a group discussion of the

survey, rating board conducted with

full board; session

performance on a

each board

summarized in a report

numeric scale;

member; results

for future use

results are discussed

are discussed by

by the full board in

the full board in

a feedback session a feedback

s e s s i o n

Strengths

• Participants are

• Participants

• Participants find the

familiar with this

become engaged

process energizing and

straightforward,

in the interview

enga ging

standard practice

process; most

• Critical thinking is

• Can be completed

find it interesting

heightened because

at a participant’s

and even enjoy-

views are shared with

convenience

a b l e

everyone and partici-

• Can track a board’s • Information tends

pants can question

progress over time

to be more

each other

• Feedback sessions

complete than

• Generates consensus

A Guide to Board Evaluation

39

Quantitative:

Qualitative:

Qualitative: Facilitated

Questionnaires

Interviews

discussion/ Group self-

assessment

often focus on

what a survey

on priorities and

generating addi-

gathers, which

support for plans to

tional information

is helpful in fully

address them

and insights to

understanding

• Requires no prepara-

supplement the

the issues,

tion by participants

survey data

setting priorities, • Serves as a team

• Anonymity can be

and developing

building exercise

ensur ed

plans to address • Most effective when

them

there is a high degree

• Feedba ck

of trust and openness

sessions tend to

among board members

be highly engaging

• Anonymity can

be ensured

(f) Analyze and discuss the results : The information obtained

from questionnaires and interviews should be collected and

analyzed in a written or oral report that is designed to

stimulate a full board or committee discussion of the results.

Whatever format is used, the evaluation should culminate in

deliberation and discussion about how the board and its

committees can improve their function. This is a key to

productive evaluation.

(g) Commit to action : The results of the evaluation should be

used to resolve issues, make changes and achieve goals. If

the Board discussion leads to consensus about areas in which

changes might be beneficial, appropriate follow-up action

should be taken. The discussion on results of entire board

evaluation process should be recorded in minutes appropriately

to reflect the evaluation done and measures taken.

Drawbacks of Internal Evaluation

•

Directors are reluctant to share issues within the company.

•

This process does not bring confidence among all

stakeholders especially shareholders as they may question

the rigour of the process.

Board Evaluation by External Agencies

The Boards of the company may identify independent external

agency to facilitate the entire process of Board, committee and

40

A Guide to Board Evaluation

directors evaluation to bring in the transparency in the system and

garner the confidence of stakeholders.

A good external facilitator can add much external perspective

which a board would otherwise not be able to access. An external

view can be both challenging as well as reassuring. Evaluation by

external agencies provides independent and impartial advice,

objectivity and rigour. Board Evaluation by external agency also helps

to gain a view on how a board is doing compared to other boards.

While conducting board evaluation through external agencies,

both the parties - the consultants and the company should be clear

about the levels of expectation associated with the assignment. Both

the parties should communicate openly and transparently to avoid

the risk of misunderstandings, and maximise the benefits of the

engagement. Agreements in the following areas should be set out

formally and in writing. It is also important to note that these external

consulting firms have no ties to the Board of Directors or senior

management, and have full autonomy in tabulating the results and

examining the appraised parameters.

(a) Clarity of engagement and scope : There should be

agreement on the scope of the assignment, in advance of

commencing work. There should be agreement on the

process which will be followed to deliver the assignment, in

advance of commencing work.

(b) Agreement on timing, deliverables and fees : There should

be agreement on the nature of the services to be provided.

The agreement should clearly identify the timescale for

completing the assignment, the deliverables, and the basis

of remuneration, in advance of commencing work.

(c) Assignment of personnel : There should be agreement on

who will carry out the assignment. The consultants should

not substitute or sub-contract or assign work without the

prior agreement of the client. The consultants should make

clear whether any person working on the assignment is

employed by the firm, or is working under contract.

(d) Communication and feedback : The consultants will ensure

that the company is kept fully informed about the progress

of the assignment. The consultants will take note of any

feedback provided by the client on the performance of the

A Guide to Board Evaluation

41

consultants’ services, and will seek formal feedback from

the company after the process not just on the outcomes, but

on the overall approach pursued by the consultants, and how

they could be more effective.

(e) Public reporting of outcomes : There should be clarity in the

agreement between the company and the consultants on the

degree and extent to which the consultants’ assent to public

reporting by the company will be required.

(f) Post-evaluation review of the assignment : The company and

the consultants should agree on whether there will be a

review of the evaluation exercise, and how the lessons

learned can be shared to the participants’ mutual benefit.

(g) Post-evaluation review of the assignment outcomes : The

company and the consultants should agree on whether, and

how, there should be a review of what actions have been

taken in response to the evaluation, and the effectiveness of

the outcomes.

***

42

A Guide to Board Evaluation

Broad Evaluation Framework

and Parameters

Boards should understand the framework under which board and

committee evaluations are conducted, and take steps to ensure

evaluations are carried out effectively. As per the Companies Act,

2013 as well as SEBI (Listing Obligations and Disclosure

Requirements) Regulations, 2015, Board evaluation would generally

include following:

1. Evaluation of the Board as a whole

2. Evaluation of the Committees

3. Evaluation of Individual Directors

•

Managing Director / Whole time Director / Executive

Director

•

Independent Directors

•

Non-executive Directors

4. Evaluation of the Chairperson

1. Evaluation of the Board as a Whole

The performance of the Board as a whole may be evaluated either

from the reviews/ feedback of the directors themselves or by

some external source. The Independent Directors at their

separate meeting shall also assess the quality, quantity and

timeliness of flow of information between the company

management and the Board that is necessary for the Board to

effectively and reasonably perform their duties. The evaluation

of the performance of the Boards is essentially an assessment

of how the Board has performed on following parameters which

determines the effectiveness of boards.

a. Structure of the Board : its composition, constitution and

diversity and that of its Committees, competencies and

42

A Guide to Board Evaluation

43

experience of the members, transparent appointment

process, Board and Committee charters, frequency of

meetings, procedures;

b. Dynamics and Functioning of the Board : annual Board

calendar, information availability, interactions and

communication with CEO and senior executives, Board

agenda, cohesiveness and the quality of participation in Board

meetings;

c. Business Strategy Governance : Board’s role in company

strategy;

d. Financial Reporting Process, Internal Audit and Internal

Controls : The integrity and the robustness of the financial

and other controls regarding abusive related party

transactions, vigil mechanism and risk management;

e. Monitoring Role : Monitoring of policies, strategy

implementation and systems;

f.

Supporting and Advisory Role; and

g. The Chairperson’s Role.

The evaluation form placed later as Part I in Sample

Evaluation Tools may be referred.

2. Evaluation of the Committees

The Board is responsible for the evaluation of the performance

its Committees. The performance of the committees may be

evaluated by the Directors, on the basis of the terms of reference

of the committee being evaluated. The evaluation may also be

externally facilitated. The broad parameters of reviewing the

performance of the Committees, inter alia, are:

a. Discharge of its functions and duties as per its terms of

reference;

b. Process and procedures followed for discharging its

functions;

c. Effectiveness of suggestions and recommendations received;

d. Size, structure and expertise of the committee; and

e. Conduct of its meetings and procedures followed in this

regard.

44

A Guide to Board Evaluation

The evaluation form placed later as Part V in Sample

Evaluation Tools may be referred.

3. Evaluation of Individual Director(s)

(a) Evaluation of Managing Director / Whole time Director /

Executive Director

The performance evaluation of Managing Director, Executive

Director of the Company may be done by all the directors.

The external facilitation may also serve as the efficient tool

for evaluation. The Code for Independent Directors provides

that Independent Directors should review the performance

of non-independent Directors, which include Managing

Director / Whole time Director/Executive Director. The broad

parameters for reviewing the performance of Managing

Director/Executive Director are:

a. Achievement of financial/business targets prescribed by

the Board;

b. Developing and managing / executing business plans,

operational plans, risk management, and financial affairs

of the organization;

c. Display of leadership qualities i.e. correctly anticipating

business trends, opportunities, and priorities affecting

the company’s prosperity and operations;

d. Development of policies, and strategic plans aligned with

the vision and mission of the company and which

harmoniously balance the needs of shareholders, clients,

employees, and other stakeholders;

e. Establishment of an effective organization structure to

ensure that there is management focus on key functions

necessary for the organization to align with its mission;

f.

Managing relationships with the Board, management

team, regulators, bankers, industry representatives and

other stakeholders; and

g. Demonstrate high ethical standards and integrity,

attendance at meeting, commitment to organization.

The evaluation form placed later as Part II in Sample

Evaluation Tools may be referred.

A Guide to Board Evaluation

45

(b) Evaluation of Independent Directors:

The performance evaluation of independent directors should

be done by the entire Board of Directors, excluding the

director being evaluated. On the basis of the report of

performance evaluation, it shall be determined whether to

extend or continue the term of appointment of the

independent director.

In addition to the parameters laid down for directors, which

shall be common for evaluation to both Independent and non-

executive directors, an independent director shall also be

evaluated on the following parameters:

a. Maintenance of independence and no conflict of interest.

b. Exercise of objective independent judgment in the best

interest of the company;

c. Ability to contribute to and monitor corporate governance

practice; and

d. Adherence to the code of conduct for independent

directors.

The evaluation form placed later as Part IV in Sample

Evaluation Tools may be referred for peer review.

The evaluation form placed later as Part III in Sample

Evaluation Tools may be referred for self assessment.

(c) Evaluation of Non-Executive Directors

In terms of the Code for Independent Directors, the

Independent director(s) on the Board of the company should

evaluate the performance of non-independent director(s)

which include non-executive director(s). Peer Review method

or external evaluation may also facilitate the purpose of

evaluating non-executive directors. The broad parameters

for reviewing the performance of non-executive directors are:

a. Participation at the Board / Committee meetings;

b. Commitment (including guidance provided to senior

management outside of Board/ Committee meetings);

c. Effective deployment of knowledge and expertise;

46

A Guide to Board Evaluation

d. Effective management of relationship with stakeholders;

e. Integrity and maintaining of confidentiality;

f.

Independence of behaviour and judgment; and

g. Impact and influence.

The evaluation form placed later as Part IV in Sample

Evaluation Tools may be referred.

4. Evaluation of Chairperson of the Board

The performance of the Chairperson is linked to both the

functioning of the Board as a whole as well as the performance

of each director. The Code for Independent Directors provides

that the Independent Director should review the performance of

the Chairperson of the company taking into account the views of

the executive directors and non-executive directors.

Therefore, all the directors of the Board of the company thereof

contribute in evaluating the performance of the Chairperson of

the Board. External agencies may also be involved in evaluating

the Chairperson.

The broad parameters for reviewing the performance of

Chairperson of the Board are:

a. Managing relationship with the members of the Board and

management;

b. Demonstration of leadership qualities and able steering of

meetings;

c. Relationship and communication within the Board;

d. Providing ease of raising of issues and concerns by the Board

members;

e. Promoting constructive debate and effective decision making

at the board;

f.

Relationship and effectiveness of communication with the

shareholders and other stakeholders;

g. Promoting shareholder confidence in the Board; and

h. Personal attributes i.e. Integrity, Honesty, Knowledge, etc.

The evaluation form placed later as Part VI in Sample Evaluation

Tools may be referred.

A Guide to Board Evaluation

47

Different criteria may be assigned different weights depending

on the organisation’s requirements, circumstances, outcome of

previous assessments, stage of Board’s maturity, etc. Instead of the

questionnaire in a simple yes/no format, it is advised that it provides

scope for grading, additional comments, suggestions, etc.

Post-evaluation Activities

Evaluations provide critical insights into how the board can

become stronger and support the organization’s strategic objectives.

However, such assessments are merely superficial if they are not

acted upon, if the strengths revealed are not leveraged, or if the

weaknesses identified are not remediated. Boards look forward to

evaluations for useful feedback, which can be used to develop

specific action plans. The results must be communicated to the

concerned people in an appropriate manner, leading to generating

an improvement action plan.

The actions a board should follow to ensure it does not just “check

the box” in an evaluation, but instead uses the resulting data for

improvement.

Generally a post evaluation activity should include –

1. Prepare a summary report and analysis of the findings

highlighting the degree of board effectiveness in each area

examined, noting areas of effectiveness as well as areas of

concern.

2. Discuss with the nomination and Remuneration Committee

what was learned in the board evaluation process and share

any additional insights.

3. Submit the report to each director and place the board's

discussion of the findings as a high-priority agenda with

sufficient time allocated.

4. Discuss the findings candidly and openly with each director

so that he/she can freely contribute his/her views.

5. Agree on and approve an action plan to address areas of

improvement.

6. Assign responsibilities and monitor any improvement

achieved.

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A Guide to Board Evaluation

7. Incorporate achievement objectives into the next board

evaluation to make it a dynamic, continuous improvement

process that is more than just an annual form-filling exercise.

A similar process may be followed for the evaluation of the board

committees.

Where the results of the evaluation concern individual director

performance, the generally accepted approach is for the board

chairman and/or the nomination and remuneration committee

chairman, with or without an external facilitator, to discuss the

findings individually with each director.

Some companies even follow the practice discuss the results of

performance of directors around the board table, a process that can

lead to much greater mutual understanding.

The success of such an approach depends very much on the

introspection, confidence and honesty of the individuals participating in

the process and the degree of trust and col egiality in their board culture.

If the objective of the board evaluation is to assess the quality

of board-management relationships, results of the evaluation should

be shared with the executive management team.

Succession Planning and Board Evaluation

It is most important that board is prepared for resignation and/or

retirement of its members. Succession planning for the board and for

board committees should follow the board evaluation process. As part

of board evaluation, an evaluation of the skills and competences within

the current board should be measured against future expected

requirements of the skills and competences within the board. This

provides a readily available profile of a new board member, if one be

required on short notice. The board should continually ensure that it

has the right set of skills, talents and attributes.

A well-prepared board will develop a succession plan that

provides guidance on identifying and sourcing potential board

members who can fulfill key requirements. This succession plan helps

the organization appoint new directors quickly in a structured manner,

allowing the board to continue its business without disruption,

meeting any business challenges that are encountered.

***

A Guide to Board Evaluation

49

Board Evaluation – Disclosure

Investors need to know whether a board is effective, and good

corporate communication can do much to convey the board’s

message to investors and other stakeholders on outcomes that arise

from evaluation. The Council of Institutional Investors in the United

States has stated in its report “Best Disclosure –Board Evaluation”

that when making voting decisions about directors, shareholders

value detailed disclosure of the board evaluation process—how the

board goes about evaluating itself, identifying areas for

improvement, and addressing them—as a window into the

boardroom. While shareholders generally do not expect the board

to discuss the details of individual director assessments, they want

to understand the process by which the board goes about regularly

improving itself. This is particularly important because over time, a

board may become complacent or may need new skills and

perspectives to respond nimbly to changes in the business

environment or strategy. Disclosures about how the board evaluates

itself, identifies areas for improvement and provide a window into

how robust the board’s process is for introducing change.

The Council of Institutional Investors has developed following

guidelines explaining its expectations of board evaluation

disclosures.

“Investors value specific details that explain who does the

evaluating of whom, how often each evaluation is conducted, who

reviews the results and how the board decides to address the results.

This type of disclosure does not discuss the findings of specific

evaluations, either in an individual or a holistic way, nor does it

explain the takeaways the board has drawn from its recent self-

evaluations. Instead, it details the “nuts and bolts” of the self

assessment process to show investors how the board identifies and

addresses gaps in its skills and viewpoints generally”.

49

50

A Guide to Board Evaluation

CII recommends that self-evaluation disclosures should go

beyond a detailed discussion of the board’s evaluation methodology

to also include a discussion of “big-picture, board-wide findings and

any steps for tackling areas identified for improvement.” This

approach focuses on the most recent evaluation and recaps key

takeaways from the board’s review of its own performance. This

evaluation includes a discussion of areas where the board feels it

functions effectively, areas where it thinks it can improve, and a

plan of action to address these matters.

Disclosure by General Electric

According to CII’s report, General Electric is one of the few U.S.

companies that provide a thorough disclosure of its board evaluation

process. Its disclosure focuses exclusively on the mechanics of how

the evaluation is conducted, without venturing into the results or

findings from previous evaluations. The detailed explanation of the

evaluation process is included in the company’s “Governance and

Public Affairs Committee Key Practices” document, which is separate

from the proxy statement. General Electric’s proxy statement includes

a brief high-level overview of how the process is conducted and

provides a link to the document where a more detailed explanation

can be found.

Disclosure made in Annual report 2016

The Board and its committees annually conduct a

performance

self-evaluation

and

recommend

improvements. Our lead director chaired four meetings of

our independent directors this year, helping us sharpen our

full Board meetings to better cover significant topics.

Compensation policies for our executives are aligned with

the long-term interests of GE investors.

***

A Guide to Board Evaluation

51

Barriers to Board Evaluation

“One of the great mistakes is to judge policies and programs

by their intentions rather than their results”. - Milton Friedman

Corporate boards today are expected to be more engaged, more

knowledgeable and more effective than in the past. In order to attain

it, board evaluation is emerging as the tool to examine board

effectiveness. Annual assessments have become the norm for boards

in many countries.

Despite the growing adoption, board assessments are falling

short of their promise of enhancing board effectiveness. They are

facing certain challenges which are acting as barriers and making

evaluation ineffective.

Barriers to board evaluation can be classified under three

categories:

Barriers to Board Evaluation /Effectiveness

Personal Concerns

•

Mindsets or Attitudes

Attitudes are the first and greatest challenge, particularly when

‘mindsets’ include indifference or inflexibility – unwillingness to

change. The duty to exercise independent judgment also poses

51

52

A Guide to Board Evaluation

distinct challenges. Many directors prefer to go along with the

majority (“group think”) to get along. Directors who have served

with the same Board members over an extended period of time

may be uncomfortable judging or being judged by colleagues.

They are accustomed to evaluating the CEO and other senior

executives, but when asked to engage in Board evaluation, they

raise a wide range of objections.

•

Incompetency to come out of comfort zone

Directors who have served with the same Board members over

an extended period of time seems to develop a comfort zone

and therefore, shows reluctance to infusion of new people into

the organization. Deliberate thought should be given to form a

well-functioning team having balance of new and old experienced

members.

•

Failure to remove unproductive members

People who are not carrying out their commitments as board

members become major blocks to overall board effectiveness.

There needs to be a process for evaluating board member

performance and making recommendations regarding their future

service with the board.

Structural Concerns

•

Non-availability of pre-defined objectives and scope for

evaluation

Board tends to spend their precious and limited time on

discussion of trivial subjects while neglecting major agenda items

which requires their absolute attention. This happens due to lack

of pre-identified objectives and scope for the evaluation.

Temptation to micro-management can be minimised by having a

strategic plan.

Areas including board process, behaviours, communication

issues, the effectiveness of executive sessions, the role of the

lead independent director, the board’s relationship to

management and development of the board’s agenda etc. can

be identified so that the evaluation can be more focussed.

•

Non-identification of assessment approach

Board’s approach assessments can be done in variety of ways

ranging from a director questionnaire to a robust process in

A Guide to Board Evaluation

53

which directors are interviewed individually, typically by a third

party, to draw out candid views about the board’s effectiveness.

•

Small size of Board

Sometimes a board is ineffective because it is simply too small

in number. When we consider the awesome responsibilities of

board leadership, it's easy to see why we need enough people

to do the work. We need enough members to lead and form the

core of the committees and, in general, share in other work of

the board. We also need sufficient numbers to reflect the desired

diversity in the board as well as assure the range of viewpoints

that spurs innovation and creativity in board planning and

decision-making.

•

Ineffective Nomination and Remuneration Committee and lack

of functioning committee structure

Nomination and remuneration committee has lasting impact on

organization as this committee determines who shall constitute

as Board leaders in future. A well organized nomination and

remuneration committee with clear sense of recruiting priorities

as well as expectations for individual board members especially

in the area of fund-raising makes the committee more effective.

These elements are frequently missing in many organizations. If

the nomination and remuneration committee or board recruiting

committee is poorly organized, board members in turn are not

likely to have a good understanding of the organization and their

role as board members.

Also, Board fails to perform below at an acceptable level is due

to lack of a functioning committee structure. While it is true that

major decisions are made in board meetings, it is also true is

that most of the work that supports and implements this decision-

making occurs at the committee level. If the board has a

committee structure that functions inadequately, this can lead

to poor performance in general.

•

Non-availability of post evaluation action plan

Some boards, for compliance reasons, begin an assessment

process, but then spend little or no time on discussing the

findings. In addition to leaving issues unresolved, lack of follow-

up can generate cynicism about the process and the board

leadership’s commitment to improving effectiveness in the future.

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A Guide to Board Evaluation

Absence of action plan to review the results of the assessment

and addressing the results of evaluation further adds to the

ineffectiveness to the board evaluation process.

•

Diversity in culture and governance process

Board structures, governance issues and cultural norms differ

by company and country, and these differences also can affect

the style and scope of the board assessment. To be most

effective, a board assessment must be tailored to the company’s

current business context.

Business Concerns

•

No strategic plan

Absence of a strategic plan in this period of rapid change would

make the process ineffective. A strategic plan provides clear

direction and helps in revealing questionable transactions like

inappropriate loans, related party transactions or fairness of

remuneration packages (annual, per meeting fees, etc). Similarly,

lack of a long-range service delivery and financial development

plan that will advance the strategic plan also be a major business

concern.

•

Absence of a Board Leader

Essential to a successful evaluation is having an independent

board leader to champion the assessment process. The

Independent Board Leader is in a position to drive the process

by involving the right people, asking for directors’ time,

scheduling time on the agenda to discuss the results and ensure

that the board follows up on the issues that emerge.

Boards Leadership Culture strongly influences the issues

investigated by it. The Chairperson plays crucial role in ensuring

legitimacy with sense of fairness and authority in evaluation

process.

•

Having narrower Perspectives

Narrower perspective on Board evaluation is a major hurdle in

process. Incorporating new perspectives on the board’s

effectiveness by seeking inputs from senior management team

members, executives who participate in most of the board

meetings such as the Chief Financial Officer and Head of Human

Resources can help in broadening our perspectives. Non-

A Guide to Board Evaluation

55

availability of a platform for obtaining valuable feedback from

Executives about what Board does well and what does not.

Board assessments also can be more valuable when boards

benchmark themselves against other high-performing boards in

the same industry segment or against best practices in a specific

area.

•

Compliance based Assessment

The Assessment process is limited to compliances only. Rather,

the process should go beyond compliance issues considering

the board’s role in strategic decision-making, gaps in knowledge

and competencies on the board, executive and director succession

planning, etc.

•

No process for Just–in–Time Board Orientation

Learning curve of directors lagged because timely training and

orientation is not provided. An effective "just-in-time" board

orientation program should be prescribed focussing on the

strategic plan of the organization. If the prospective board

members are familiar with the mission, vision, major goals, and

strategies of the organization and additional information and

training is provided to the greatest extent possible, new board

members will participate in their first meeting with confidence.

***

56

A Guide to Board Evaluation

Board Evaluation - Current Trends and

Practices in India

Prior to Companies Act, 2013, most companies conducted board

evaluation to raise the company’s Corporate Governance standards

and to ensure that the Boards and their members are functioning

properly. Now, Board evaluation is a mandatory requirement for

certain prescribed classes of companies. Only the government

companies where directors are evaluated by the Ministry or

Department of the Central or State Government are exempted.

India Board Report 2015-16 surveyed over 500 companies.

Selection of the companies was based on their market capitalization

(750 crore INR and more) on the Bombay Stock Exchange (BSE) and

their ownership. According to survey, sixty-two per cent of the

companies surveyed do not currently have a board evaluation process,

and will have to introduce it. Eighty-nine per cent of companies that

have a board evaluation process, would prefer to do it internally.

Among the companies that need to implement a board evaluation

process, 66% would prefer to do a self-assessment and a very small

percentage (16%) of companies, indicated that they will avail the

services of an external/third-party assessor. However, most of the

top 100 companies listed on BSE have implemented board evaluation

process, except Govt. companies which are exempted.

Disclosures

Section 134 (3) (p) provides that the report by Board of Directors

of every company except Government Companies should include a

statement indicating the manner in which formal annual evaluation

has been made by the Board of its own performance and that of its

committees and individual directors.

Though most of the companies have disclosed a para on Board

evaluation stating that they have conducted evaluation of board,

this approach does not focus on the mechanics of how the board

evaluation process is conducted and analyzed. Investors value

56

A Guide to Board Evaluation

57

specific details that explain who does the evaluating of whom, how

often each evaluation is conducted, who reviews the results and

how the board decides to address the results. This type of disclosure

does not discuss the findings of specific evaluations, either in an

individual or a holistic way, nor does it explain the takeaways the

board has drawn from its recent self-evaluations. Instead, it details

the “nuts and bolts” of the self-assessment process to show investors

how the board identifies and addresses gaps in its skills and

viewpoints generally. This kind of disclosure can be an “evergreen”

approach that remains the same in proxy materials from year to

year, assuming the board’s evaluation process does not change.

Process of Evaluation

The Act does not prescribe any specific method for evaluating

the board. Generally, Board evaluation is an elaborate process. Pre-

evaluation process involves deciding the objective, criteria and

method for evaluating the board. The board decides all those with

inputs from the CEO. The most common evaluation method is to

collect data by analysing governance documents (e.g., agenda and

minutes), surveying directors through a questionnaire and

interviewing directors. A robust board evaluation strategy employs

all of these tools both in combination and rotation over time.

The data so collected is analysed and a report is presented for

discussion before the full board. Performance of individual directors

is assessed through self-assessment and interview. Feedback is

provided to each director on a one-to-one basis. Usually, the

chairperson of the Nomination and Remuneration Committee or the

lead independent director supervises the whole process, interviews

individual directors, provides feedback to each director and presents

the report before the full board. Confidentiality is the hallmark of

the evaluation process. Therefore, names of individuals are removed

from all documents while collating and analysing the data.

On analysing the annual reports for the year 2015-16 of top 100

companies listed in Bombay Stock Exchange, Bosch Limited, Dabur,

Dr. Reddy, Godrej Consumer, Hero MotoCorp, HDFC, HDFC bank,

Infosys, JSW Steel, Kotak Mahindra Bank, L&T, Mahindra and

Mahindra Limited, Titan, Vedanta, Wipro and ICICI Bank (2016-17)

have evaluated their directors and committees through

questionnaires.

58

A Guide to Board Evaluation

HDFC Bank in its annual report has mentioned that the

Nomination and Remuneration Committee has approved a

framework / policy for evaluation of the Board, Committees of the

Board and the individual members of the Board. The said framework/

policy was duly reviewed during the year. The process of board

evaluation adopted by HDFC Bank disclosed in its annual report 2015-

16 is given in following paras -

“A questionnaire for the evaluation of the Board and its

Committees, designed in accordance with the said framework and

covering various aspects of the performance of the Board and its

Committees, including composition and quality, roles and

responsibilities, processes and functioning, adherence to Code of

Conduct and Ethics and best practices in Corporate Governance was

sent out to the directors. The responses received to the questionnaires

on evaluation of the Board and its Committees were placed before

the meeting of the Independent Directors for consideration. The

assessment of the Independent Directors on the performance of the

Board and its Committees was subsequently discussed by the Board

at its meeting.

Bank has in place a process wherein declarations are obtained

from the directors regarding fulfilment of the “fit and proper” criteria

in accordance with the guidelines of the Reserve Bank of India. The

declarations from the Directors other than members of the NRC are

placed before the NRC and the declarations of the members of the

NRC are placed before the Board. Assessment on whether the

Directors fulfil the said criteria is made by the NRC and the Board on

an annual basis. In addition, the framework / policy approved by the

NRC provides for a performance evaluation of the Non-Independent

Directors by the Independent Directors on key personal and

professional attributes and a similar performance evaluation of the

Independent Directors by the Board, excluding the Director being

evaluated. Such performance evaluation has been duly completed

as above.”

Criteria for evaluation

The Section 178 (2) of Companies Act 2013 and SEBI (LODR)

Regulations provides that Nomination and remuneration Committee

shall formulate criteria for evaluation of performance of independent

directors and the board of directors. In Annual Reports of 2016, some

A Guide to Board Evaluation

59

companies like Asian Paints, Bajaj Auto, Berger Paints, Bharti Infratel,

Britannia, Cadila healthcare, Dabur, Dr. Reddy, Emami, Eicher Motors,

Godrej Consumer, Havells, HCL Technologies, Hero MotoCorp,

Indiabulls, IndusInd Bank, JSW Steel, Kotak Mahindra Bank, L & T

Finance Holdings, L&T, LIC Housing Finance, Lupin, Maruti Suzuki,

Motherson Sumi Systems, Petronet LNG, Reliance Industries,

Siemens, Sun Pharma, Tata Motors, Tata Steel, Tech Mahindra, TVS

Motors, Titan, Vedanta and in 2017 - ICICI Bank, TCS and Yes Bank

have mentioned certain criteria for evaluation of board, directors

and committees in their annual report.

Hero Motocorp Ltd. has stated in its annual report various

criteria on which evaluation of directors has taken place. The company

has made disclosure in its annual report of 2015-16 as –

“Performance of the Board was evaluated on various parameters,

such as composition, strategy, tone at the top, risk, controls and

diversity. Similarly, questionnaires for Committees were also framed

on the parameters, such as adherence to the terms of reference and

adequate reporting to the Board. Parameters for the Directors

included intellectual independence of the Director, participation in

formulation of business plans, constructive engagement with

colleagues and understanding of risk profile of your Company. The

Chairman of the Company was evaluated on parameters such as

leadership style and motivation of the Directors.”

Berger Paints India Ltd. has stated in its annual report that ‘the

Compensation and Nomination and Remuneration Committee have

laid down the following criteria for evaluating the performance of

the Board of Directors:

1. Board members support and debate the organisation’s strategy

and values, enabling them to set the tone from the top.

2. Board members have a clear understanding of the

organisation’s core business, its strategic direction and the

financial and human resources necessary to meet its

objectives.

3. The Board sets the Company’s targets and measures its

performance against them.

4. Board meetings encourage a high quality of debate with

robust and probing discussions.

60

A Guide to Board Evaluation

5. Board members make decisions objectively and

collaboratively in the best interests of the organisation and

feel collectively responsible for achieving organisational

success.

5. The Board communicates effectively with shareholders.

6. Board members recognise the role which they and each of

their colleagues is expected to play and have the appropriate

skills and experience for that role.

7. Board members actively contribute at meetings.

8. The Board has open channels of communication with

executive management and others and is properly briefed.

9. The Board is aware of steps taken to assess and mitigate

risks through Business Process and Risk Management

Committee.

10. The Board is the right size and has the good mix of skills to

ensure its optimum effectiveness.

11. The Board’s committees are properly constituted, perform

their delegated roles and report back clearly and fully to the

Board.

12. The Board meets sufficiently often, and with information of

appropriate quality and detail, such that agenda items can

be properly covered in the time allocated.

13. Information is received in sufficient time to allow for proper

consideration, with scope for additional briefing, if necessary.’

Ashok Leylands Limited has mentioned several detailed

parameters for Board evaluation in its Annual Report of 2015-2016.

‘The criteria for performance evaluation are as follows:

(i) Role and Accountability

-

Understanding the nature and role of Independent

Directors’ position.

-

Understanding of risks associated with the business.

-

Application of knowledge for rendering advice to

management for resolution of business issues.

A Guide to Board Evaluation

61

-

Offer constructive challenge to management strategies

and proposals.

-

Active engagement with the management and

attentiveness to progress of decisions taken.

(ii) Objectivity

-

Non-partisan appraisal of issues.

-

Own recommendations given professionally without

tending to majority or popular views.

(iii) Leadership and Initiative

-

Heading Board Sub-committees.

-

Driving any function or identified initiative based on

domain knowledge and experience.

(iv) Personal Attributes

-

Commitment to role and fiduciary responsibilities as a

Board member.

-

Attendance and active participation.

-

Proactive, strategic and lateral thinking.’

Idea Cellular

‘A formal evaluation mechanism is in place for evaluating the

performance of the Board, the Committees thereof, individual

Directors and the Chairman of the Board. The evaluation was done

based on the criteria which includes, among others, providing

strategic perspective, Chairmanship of Board and Committees,

attendance and preparedness for the meetings, contribution at

meetings, effective decision making ability, role of the Committees.

The Directors expressed their satisfaction with the evaluation process.’

ICICI Bank (2016-17)

‘The evaluations for the Directors, the Board and the Chairperson

of the Board were undertaken through circulation of three

questionnaires, one for the Directors, one for the Board and one for

the Chairperson of the Board. The performance of the Board was

assessed on select parameters related to roles, responsibilities and

obligations of the Board and functioning of the Committees including

62

A Guide to Board Evaluation

assessing the quality, quantity and timeliness of flow of information

between the company management and the Board that is necessary

for the Board to effectively and reasonably perform their duties. The

evaluation criteria for the Directors was based on their participation,

contribution and offering guidance to and understanding of the areas

which were relevant to them in their capacity as members of the

Board. The evaluation criteria for the Chairperson of the Board besides

the general criteria adopted for assessment of all Directors, focused

incrementally on leadership abilities, effective management of

meetings and preservation of interest of stakeholders. The evaluation

process for whole-time Directors is further detailed under the section

titled “Compensation Policy and Practices.’

Marico Ltd. has disclosed the criteria as well as process of

Evaluation –

‘Marico’s Board is committed to assessing its own performance

as also performance of individual director in order to identify its

strengths and areas in which it may improve its functioning. Towards

this end, the Corporate Governance Committee of the Board (‘CGC’)

(which functions as the Nomination and Remuneration Committee

of the Company for the purpose of the Companies Act, 2013),

established the criteria and processes for evaluation of performance

of individual Directors, Chairman of the Board, the Board as a whole

and its individual statutory Committees. The appointment/

reappointment/ continuation of Directors is subject to positive

outcome of the annual evaluation process. The manner in which the

evaluation has been carried out has been explained in the Corporate

Governance Report. In terms of the Act, the Independent Directors

on Marico’s Board also meet separately once in a year to discuss the

matters as prescribed under Schedule IV to the Act and to assess the

performance of the Non – Independent Directors of your Board.

The board evaluation exercise during the year under review has

resulted in the Board identifying three focus areas for it to work

upon in the coming years:

1. Intensifying its efforts in guiding the organization to get future

ready, especially in identifying new growth drivers;

2. Renewed focus and time commitment for mentoring the

senior management, setting them up for success in the ever

changing macro environment; and

A Guide to Board Evaluation

63

3. Revisiting the Board composition with an eye on future trends

especially in the digital era.

The Board is also committed to review progress on these priorities

during the annual Board Retreats held once a year.’

Evaluation by External Agency

On analysing the annual reports of top 100 companies listed in

Bombay Stock Exchange in India, it is observed that some companies

Ashok Leyland, Axis Bank, Bharti Airtel, Bharti Infratel, Infosys, Nestle

and Shree Cement have disclosed that they have appointed external

agency for board evaluation. Some companies are government

companies and are not required to get board evaluation done. Other

companies have not appointed any external consultants for this

process.

Post-Evaluation Activities

Most companies out of top 100 companies which have been

analysed, have not mentioned anything about post evaluation

activities done by them in the annual report. Some companies like

Hindustan Unilever Limited, Bosch Limited and Dr. Reddy have

reported that they have taken post evaluation activity also. The

extracts from their annual reports are given below-

Hindustan Unilever Limited – ‘The results of the Evaluation were

shared with the Board, Chairman of respective Committees and

individual Directors. Based on the outcome of the Evaluation, the

Board and Committees have agreed on an action to further improve

the effectiveness and functioning of the Board and Committees.’

Bosch Limited – “ The feedback from the Directors was

summarized and ideas for further improving effectiveness of the

Board processes, etc. were discussed.”

Dr. Reddy’s Laboratories - ‘A 360 degree feedback cum-

assessment of individual Directors, the Board as a whole and its

Committees was discussed and collective action points for

improvement were put in place.’

Bharti Airtel - ‘The Board members noted the suggestions/ inputs

of Independent Directors, HR and Nomination Committee and

respective committee Chairman and also discussed various

initiatives to further strengthen Board effectiveness.’

64

A Guide to Board Evaluation

Vedanta – ‘Based on the feedback of the Board Evaluation

process, appropriate measures were taken to further improve

the process and other aspects.’

Review of board by independent directors

The Act requires independent directors to hold at least one

meeting in a year, without the attendance of non-independent

directors and members of the management and in that meeting they

are required to review the performance of the non-independent

directors and the Board as whole; and also review the performance

of the Chairperson of the company, taking into account the views of

the executive and non-executive directors.

Independent directors should formally evaluate the board and

non-independent directors. They may finalise the draft report in the

separate meeting. Although, the law is silent on how the result of

evaluation will be used, the draft report should be discussed with

the full board to decide the actions for improving board effectiveness.

Independent directors should involve the CEO and the full board in

deciding the objective, criteria and method of evaluation.

One of the leading Pharmaceutical Indian Company – Sun

Pharmaceutical Industries Limited has stated in its annual report

that separate meeting of independent directors was conducted –

“In a separate meeting of Independent Directors, performance of

Non Independent Directors, performance of the Board as a whole

and performance of the Chairman was evaluated, taking into account

the views of the Executive Directors and Non-executive Directors.

The same was discussed in the Board Meeting that followed the

meeting of Independent Directors at which the performance of the

Board, its Committee and individual Directors was also discussed.”

Evaluation of independent directors

The laws and regulations also provided for the review of

performance of the independent directors by the entire Board

excluding the director and the continuance or extension of the

independent director would be determined by the performance

evaluation report.

However, discussion of report cards of individual directors with

the full board is likely to be resented by directors and might drive

away good directors. The best practice may be to use self-assessment

A Guide to Board Evaluation

65

and interview method to assess individual performance and to provide

feedback to each director (independent or non-independent) on a

one-to-one basis. The reports of independent directors should be

submitted to the chairperson of the Nomination and Remuneration

Committee. It should consider the same while deciding the

continuation of the independent director as a board member. Boards

should adopt the global best practices.

Mostly companies in India which have been assessed have

evaluated the entire board including independent directors.

Bharti Infratel disclosed the criteria of evaluation of independent

directors as under:

‘Some of the performance indicators based on which the

Independent Directors were evaluated include:

— Devotion of sufficient time and attention towards professional

obligations for independent decision and acting in the best

interest of the Company;

— Provides strategic guidance to the Company and determine

important policies with a view to ensure long term viability

and strength;

— Bringing external expertise and independent judgement that

contributes to the objectivity of the Board’s deliberation,

particularly on issues of strategy, performance and conflict

management.’

Infosys in its Annual Report 2016-17 disclosed ‘the performance

indicators on which the independent directors are evaluated:

— The ability to contribute and monitor our corporate

governance practices

— The ability to contribute by introducing international best

practices to address business challenges and risks

— Active participation in long-term strategic planning

— Commitment to the fulfilment of a director’s obligations and

fiduciary responsibilities; these includes participation in Board

and Committee meetings.’

***

66

A Guide to Board Evaluation

Sample Policy for Evaluation of the

Performance of the Board of Directors

EFFECTIVE DATE

1. INTRODUCTION

As one of the most important functions of the Board of Directors

is to oversee the functioning of company’s top management, this

policy aims at establishing a procedure for conducting periodical

evaluation of directors’ performance and formulating the criteria for

determining qualification, positive attribute and independence of

each and every director of the company in order to effectively

determine issues relating to remuneration of every director, key

managerial personnel and other employees of the company. This

policy further aims at ensuring that the committees to which the

Board of Directors has delegated specific responsibilities are

performing efficiently in conformity with the prescribed functions

and duties. In addition, the Nomination and Remuneration Committee

shall carry out the evaluation of performance of every director, key

managerial personnel in accordance with the criteria laid down.

2. OBJECTIVE

The object of this policy is to formulate the procedures and also

to prescribe and lay down the criteria to evaluate the performance

of the entire Board of the Company.

3. RESPONSIBILITY

— Responsibility of the Board

It shall be the duty of the chairperson of the board, who shall

be supported by a Company Secretary to organise the

evaluation process and accordingly conclude the steps

required to be taken. The evaluation process will be used

constructively as a system to improve the directors’ and

66

A Guide to Board Evaluation

67

committees’ effectiveness, to maximise their strength and

to tackle their shortcomings.

The Board of Directors shall undertake the following activities

on an annual basis

— The board as a whole shall discuss and analyze its own

performance during the year together with suggestions

for improvement thereon, pursuant to the performance

objectives.

— Review performance evaluation reports of various

committees along with their suggestions on improving

the effectiveness of the committee. Also, the requirement

of establishing any new committees shall be reviewed

by the Board on an annual basis.

— Review the various strategies of the company and

accordingly set the performance objectives for directors.

— Ensure that adequate disclosure is made with regard to

performance evaluation in the Board’s Report.

— Responsibility of the Nomination & Remuneration Committee

It shall evaluate the performance of individual Directors of

the Company as per the terms of the Nomination and

Remuneration Policy of the Company framed in accordance

with the provisions of section 178 of the Companies Act,

2013.

— Responsibility of Independent Directors

Independent Directors are duty bound to evaluate the

performance of non-independent directors and Board as a

whole. The independent directors of the Company shall hold

at least one meeting in a year to review the performance of

non-independent directors, performance of the chairperson

of the Company and Board as a whole, taking into account

the views of executive directors and non-executive directors.

The independent directors at their separate meetings shall:

(a) review the performance of non-independent directors and

the Board as a whole;

68

A Guide to Board Evaluation

(b) review the performance of the Chairperson of the

Company, taking into account the views of executive

directors and non-executive directors;

(c) assess the quality, quantity and timeliness of flow of

information between the company management and the

Board that is necessary for the Board to effectively and

reasonably perform their duties.

— Evaluation of Independent Director shall be carried on by

the entire Board of Directors of the Company except the

Director getting evaluated.

4. POLICY REVIEW

Subject to the approval of Board of Directors, the “Nomination

and Remuneration Committee” reserves its right to review and amend

this policy, if required, to ascertain its appropriateness as per the

needs of the Company. The Policy may be amended by passing a

resolution at a meeting of the Nomination and Remuneration

Committee.

5. DISCLOSURE

In accordance with the requirement under the Act, disclosure

regarding the manner in which the performance evaluation has been

done by the Board of Directors of its own performance, performance

of various committees of directors and individual directors’

performance will be made by the Board of Directors in the Board’s

Report. Further, the Board’s Report containing such statement will

be made available for the review of shareholders at the general

meeting of the Company.

The Policy has been made available on Company’s official

website and the key features of this Policy have also been included

in the corporate governance statement contained in the annual

report of the Company.

***

A G

SAMPLE EVALUATION TOOLS

uid

Rating Scale:

e to

1. Outstanding

Bo

2. Exceeds Expectation

ard

3. Meets Expectation

Eva

4. Needs Improvement

lua

5. Poor

tion

PART I

Board of Directors Evaluation

(By all the directors or externally facilitated)

Criteria

1

2

3

4

5

How can the board

do it better or

differently

Board Composition & Quality

1 The Board has appropriate qualifications, expertise and experience to meet

the best interests of the company.

2 The board has appropriate combination of industry knowledge and diversity

(gender, experience, background, competence).

3. The process of appointment to the board of directors is clear and transparent.

4. The Role and responsibilities of the Board and its members are clearly

documented.

69

70

5 All the independent directors are independent in true letter and spirit i.e.

whether the independent Director has given declaration of independence

and they exercise their own judgement, voice their concerns and act freely

from any conflicts of interests.

6 Board members demonstrate highest level of integrity (including

maintaining confidentiality and identifying, disclosing and managing

conflicts of interests).

7 The Board members spend sufficient time in understanding the vision,

mission of the company and strategic and business plans, financial reporting

risks and related internal controls and provides critical oversight on the same.

8 The Board understands the legal requirements and obligations under which

they act as a Board; i.e. by laws, corporate governance manual etc. and

discharge their functions accordingly.

A

9 The Board has set its goals and measures its performance against them on

G

annual basis.

uide

10 The Board has defined its stakeholders and has appropriate level of

to B

communication with them.

oard

11 The Board understands the line between oversight and management.

Evalua

12 The board monitors compliances with corporate governance regulations

tio

and guidelines.

n

A G

13 An effective succession plan of board in place.

uide t

14 The Board has the proper number of committees as required by legislation and

o B

guidelines, with well-defined terms of reference and reporting requirements.

oard

15 The Board regularly reviews the grievance redressal mechanism of investors.

Evalu

Board Meetings and Procedures

ation

1 The Annual Calendar of Board meetings is communicated well in advance

and reviewed from time to time.

2 The Board meeting agenda and related background papers are concise and

provide information of appropriate quality and detail.

3 The information is received by board members sufficiently in advance for

proper consideration.

4 Adequacy of attendance and participation by the board members at the

board meetings.

5 Frequency of Board Meetings is adequate.

6 The facility for video conferencing for conducting meetings is robust.

7 Adequate and timely inputs are taken from the members of the board prior

7

to setting of the Agenda for the meetings.

1

72

8 Location of Board Meeting (As a good governance practice the Board

meeting should be held at different places).

9 The Board meetings encourage a high quality of discussions and decision

making.

10 Openness to ideas and ability to challenge the practices and throwing up

new ideas.

11 The amount of time spent on discussions on strategic and general issues is

sufficient.

12 How effectively does the Board works collectively as a team in the best

interest of the company?

13 The minutes of Board meetings are clear, accurate, consistent, complete

and timely and records dissenting views.

A Gu

14 The actions arising from board meetings are properly followed up and

ide

reviewed in subsequent board meetings.

to Bo

15 The processes are in place for ensuring that the board is kept fully informed

ard

on all material matters between meetings (including appropriate external

Ev

information eg. emerging risks and material regulatory changes).

aluati

16 Adequacy of the separate meetings of independent directors.

on

A G

17 Appropriateness of secretarial support made available to the Board.

uide t

18 The Board members understand the terms and conditions of D & O

o B

insurance.

oard

19 All proceedings and resolutions of the Board are recorded accurately,

Eva

adequately and on a timely basis.

luati

Board Development

on

1 Appropriateness of the induction programme given to the new board

members.

2 Timeliness and appropriateness of ongoing development programmes to

enhance skills of its members

3 Appropriate development opportunities are encouraged and

communicated well in time

Board Strategy and Risk Management

1 The time spent on issues relating to the strategic direction and not day-to-

day management responsibilities

2 Engaging with management in the strategic planning process, including

corporate goals, objectives and overall operating and financial plans to

7

achieve them.

3

74

3 The Board has developed a strategic plan / policies and the same would

meet the future requirement of the Company.

4 The Board has sufficient understanding of the risk attached with the business

structure and the Board uses appropriate risk management framework and

whether board reviewed and understood the risks provided in the internal

audit report and the management is taken sufficient steps to mitigate the

risk.

5 The Board evaluates the strategic plan/ policies periodically to assess the

Company’s performance, considers new opportunities and responds to

unanticipated external developments.

6 The Risk management framework is subject to review.

7 Monitoring the implementation of the long term strategic goals.

A

8 Monitoring the company’s internal controls and compliance with applicable

Gu

laws and regulations.

ide t

9 The adequacy of Board contingency plans for addressing and dealing with

o Bo

crisis situations.

ard E

10 Appropriateness of effective vigil mechanism.

valu

11 The Board focuses its attention on long-term policy issues rather than short-

atio

term administrative matters.

n

A G

12 The Board discusses thoroughly the annual budget of the Company and its

uid

implications before approving it.

e to B

13 The Board periodically reviews the actual result of the Company vis-à-vis

oa

the plan/ policies devised earlier and suggests corrective measures, if

rd E

required.

valu

Board and Management Relations

atio

1 The Board sets the overall tone and direction of the Company.

n

2 The Board has approved comprehensive policies and procedures for smooth

conduct of all material activities by Company.

3 The Board has a range of appropriate performance indicators that are used

to monitor the performance of management.

4 The Board is well informed on all issues (short and long-term) being faced

by the Company.

5 The Board adequately reviews proposed departures from the long-and

short- term business plans of the Company before they take place.

6 The Board sets a corporate culture and the values by which executives shall

behave.

7 The Board and the management are able to actively access each other and

exchange information.

7

8 The level of independence of the management from the Board is adequate.

5

76

Succession Planning

1 The Board has a succession plan for the Chairperson and the Chief Executive

Officer / Managing Director.

2 The Board reviews the existing succession plan and if appropriate, make

necessary changes by taking into account the current conditions.

Stakeholder value and responsibility

1 The Board treats shareholders and stakeholders fairly where decisions of

the board of directors may affect different shareholder/ stakeholder groups

differently.

2 The Board regularly reviews the Business Responsibility Reporting / related

corporate social responsibility initiatives of the entity and contribution to

society, environment etc.

A Guide to Board Evaluation

A G

Outstanding

Exceeds Expectation

Meets Expectation

Needs Improvement

Poor

uide to

Overall rating of

Bo

Board performance

ard Eva

Comment

.................………………………………………................................................…………………

luatio

................………………………………………................................................…………………

n

................………………………………………................................................…………………

Please suggest three things that could improve Board’s performance.

Name of Director:

a) ………………………………………………………………………

…………………………………………

b) ………………………………………………………………………

Signature:

c) ………………………………………………………………………

…………………………………………

Date :

…………………………………………

If Externally facilitated,

Comments of evaluator:

77

78

PART II

MANAGING DIRECTOR / EXECUTIVE DIRECTOR ASSESSMENT FORM

(By all the Board members)

RATINGS

COMMENTS

EVALUATION FACTOR

1

2

3

4

5

Leadership

1. The MD / ED has shown clear vision in correctly

anticipating business trends, opportunities, and

priorities affecting the Company’s prosperity and

operations.

2. The MD / ED has clearly translated his/her vision and

A

strategy into feasible business or operational plans to

G

achieve strategic success for the Company.

uide t

3. The MD/ ED has accurately communicated his/her

o Bo

concept, vision, mission, strategies, goals, and

ar

directions for the Company to stakeholders.

d Evalu

4. The MD / ED has motivated and encouraged high

ati

employee morale and loyalty to the organization, and

on

A

facilitated team-building and cohesiveness among the

Gui

Company’s employees to achieve the Company’s vision.

de to Boa

5. The MD / ED is open to constructive suggestions, and

rd E

exercised effective leadership for the organization.

valuat

6. The MD / ED has been an initiator, setting high working

ion

standards and pursuing goals with a high level of

personal drive and energy.

Strategy Formulation

7. The MD / ED has developed clear mission statements,

policies, and strategic plans that harmoniously balance

the needs of shareholders, clients, employees, and

other stakeholders.

8. The MD/ED has accurately identified and analyzed

problems and issues confronting the Company.

9. The MD/ED has accurately determined and assessed key

success factors for formulating the Company’s strategy.

79

80

10. The MD/ED has ensured that board members, senior

management and other employees had participated in

the formulation of strategic plans so that they had the

ownership of the plans.

11. The MD/ED has assured that company’s resources and

budgets are aligned to the implementation of the

organization’s strategic plan.

12. The MD/ED has established processes that did the

monitoring and controlling works, thus ensuring that

the effectiveness of organizational performance,

including risk management, was achieved.

Strategy execution

A

13. The MD/ED has established an effective organization

Gui

structure, ensuring that there is management focus on

de

key functions necessary for the organization to align

to B

with its mission.

oard E

14. The MD/ED has organized and delegated work

val

accurately, and has performed his or her functions

uat

within his/her scope of responsibility.

ion

A G

15. The MD/ED has consistently made sound decisions and

uid

made timely adjustments in strategies, if required.

e to B

16. The MD/ED has timely and effectively executed

oa

strategies on priorities and with measures set by the

rd E

Board.

valua

17. The MD/ED has accurately supervised performance

tio

monitoring and performance control to ensure

n

accountability at all levels of the organization.

18. The MD/ED has ensured that the company’s operations

complied with requirements from all pertinent laws and

regulations .

Financial planning / performance

19. The MD/ED has possessed a good understanding of the

company’s financial measures relevant to its business

and financial situation.

20. The MD/ED has exercised good judgment in managing

the financial affairs and budgets of the organization.

21. The MD/ED has effectively monitored and evaluated

financial planning, budget and administrative

8

operations.

1

82

Relationships with the Board

22. The MD/ED has built strong working relationships with

Board members and has worked closely and

cooperatively with the board in developing the mission,

and short, medium and long-term strategic plans.

23. The MD/ED has demonstrated a sound knowledge of

Board governance procedures and has consistently

followed them.

24. The MD/ED has presented information to the board on

items requiring Board opinions and decisions in a

professional manner, with recommendations based on

thorough study and sound principles.

25. The MD/ED has been available to individual Board

A

members whenever necessary, as well as supported the

Gui

board in its governance duties by providing necessary

de

resources and other facilities.

to Bo

External Relations

ard E

26. The MD/ED has served as an effective Company’s

valu

representative in communicating with all stakeholders.

ation

A G

27. The MD/ED has encouraged corporate social

uid

responsibility and community involvement in

e to

promoting a positive image of Company.

Boar

28. The MD/ED has assured that the Company maintains

d E

positive relationships in the community and cultivates

val

good working relationships with community groups and

uat

organizations.

ion

Human Resources Management/Relations

29. The MD/ED has created and maintained an

organizational culture and climate which attracts, keeps

and motivates staff to carry out the Company’s mission,

strategic directions and organizational goals.

30. The MD/ED effectively monitors procedures and

practices pertaining to human resources, including

appraisal process and rewarding systems for

management and employees.

31. The MD/ED has ensured that the company has good

internal communication and treated all personnel fairly,

without favoritism or discrimination.

83

84

Succession

32. The MD/ED has effectively reviewed the Company’s

succession plan, and, if appropriate, made necessary

changes by taking into account conditions that are

external or internal to the Company.

33. The MD/ED has put in place the processes and programs

required to create a pipeline of future leadership.

Product/Service Knowledge

34. The MD/ED has demonstrated a thorough knowledge

and understanding about key aspects of the Company’s

products and services.

35. The MD/ED has demonstrated a thorough knowledge and

A G

understanding of Company management and operations.

uide

36. The MD/ED has a good understanding of the company’s

to B

business model and allocation of its resources, as well

oa

as business and industry environment.

rd Eva

37. The MD/ED has regularly demonstrated creativity and

lua

initiative in creating new products and services.

tion

A G

Personal Qualities

uide

38. The MD/ED has attained an image that reflects

to B

positively on the company, as well as demonstrated a

oa

personality, outlook, and attitude that wins trust and

rd E

support from all stakeholders.

valua

39. The MD/ED has exercised good judgment in dealing with

tio

sensitive issues between people and between groups.

n

40. The MD/ED has shown skills at analyzing and addressing

problems, challenges and conflicts, and has been

comfortable with ambiguity and complexity.

41. The MD/ED has maintained a high standard of ethics

and integrity, as well as a healthy balance of time

management and priorities in both work-related and

personal matters.

Outstanding

Exceeds Expectation

Meets Expectation

Needs Improvement

Poor

Overall rating of

Overall rating of

Managing Director /

Executive Director’s

8

performance

5

86

Comment

.................………………………………………................................................…………………

................………………………………………................................................…………………

................………………………………………................................................…………………

Please suggest three things that could improve Board’s performance.

Name of Director:

a) ………………………………………………………………………

…………………………………………

b) ………………………………………………………………………

Signature:

c) ………………………………………………………………………

…………………………………………

Date :

…………………………………………

A Guide to Board Evaluation

A

PART III

Guide

DIRECTOR SELF ASSESSMENT/ PEER REVIEW

to Bo

Criteria

1

2

3

4

5

ard E

KNOWLEDGEABLE

valuati

1 Understands duties, responsibilities, qualifications, disqualifications and liabilities on

as a director.

2 Brings relevant experience to the board and uses it effectively.

3 Understands the vision and mission of the company, strategic plan and key issues.

4 Staying abreast of issues, trends and risks (including opportunities and competitive

factors) affecting the company, and using this information to assess and guide the

company’s performance.

5 Takes advantage of opportunity to upgrade skills by regularly attending professional

development programmes.

6 The management communications are sufficient to enhance company specific

updates.

87

88

DILIGENCE & PARTICIPATION

1 Regularly and constructively attend board, committee and general meetings.

2 Prepares in advance for board and committee meetings.

3 Communicates opinions and concerns in a persuasive yet clear and concise

manner.

4 Uses Independent judgement in relation to decision making.

5 Facilitates and encourages change when it would improve board processes.

6 Encourages other members to contribute their opinions.

A G

7 Raises appropriate issues at meetings and asking the appropriate questions for

uid

clarity.

e to Bo

8 Contributions add value to the decision making.

ard Ev

9 Gets dissent recorded in minutes.

aluati

10 Maintains confidentiality.

on

A G

11 Abides by the legal obligations and code of conduct.

uide to

12 Reports concerns about unethical behaviour, actual and suspected fraud.

Board

LEADERSHIP TEAM

Evalua

1 Listens attentively to the contributions of others.

tion

2 Initiates discussions on issues in company’s interest.

3 Shares good interpersonal relationship with other directors.

4 Supportive and cooperative.

5 Respected by board members.

6 Insists on receiving information necessary for decision making to all the directors.

7 Manages conflicts of interest in best interest of the company.

8 Safeguard the interest of all stakeholders in the decision making.

8

9 Personal values are in congruence with that of the company.

9

90

PART IV

NON-EXECUTIVE DIRECTOR AND INDEPENDENT DIRECTOR EVALUATION FORM

(PEER REVIEW- by Directors other than director being evaluated)

Name of the Director: ______________________________;

Category: Independent / Non-executive

PART A

RATINGS

COMMENTS

EVALUATION FACTOR

1

2

3

4

5

Participation at Board/ Committee Meetings

1. Director comes well prepared and informed for the

A

Board / committee meeting(s).

Guide

2. Director demonstrates a willingness to devote time and

to

effort to understand the Company and its business and

Bo

a readiness to participate in events outside the meeting

ard

room, such as site visits?

Evalua

3. Director has ability to remain focused at a governance

tio

level in Board/ Committee meetings.

n

A G

4. Director’s contributions at Board / Committee meetings

uid

are of high quality and innovative.

e to B

5. Director’s proactively contributes in to development of

oar

strategy and to risk management of the Company.

d Eva

Managing Relationship

luatio

6. Director’s performance and behaviour promotes mutual

n

trust and respect within the Board / Committee.

7. Director is effective and successful in managing

relationships with fellow Board members and senior

management ?

Knowledge and Skill

8. Director understands governance, regulatory, financial,

fiduciary and ethical requirements of the Board /

Committee.

9. Director actively and successfully refreshes his/ her

knowledge and skills and up to date with the latest

developments in areas such as corporate governance

framework, financial reporting and the industry and

9

market conditions.

1

92

10. Director is able to present his/ her views convincingly

yet diplomatically.

11. Director listens and takes on Board the views of other

members of Board.

Personal Attributes

12. Director has maintained high standard of ethics and

integrity.

Outstanding

Exceeds Expectation

Meets Expectation

Needs Improvement

Poor

Overall rating of

Committee performance

Comment

.................………………………………………................................................…………………

A Gu

................………………………………………................................................…………………

ide to

Please suggest three things that could improve Board’s performance.

Name of Director:

Bo

a) ………………………………………………………………………

…………………………………………

ard

b) ………………………………………………………………………

Signature:

Ev

c) ………………………………………………………………………

…………………………………………

alu

Date :

ati

…………………………………………

on

A

Part - B

Guide

If concerned director is “Independent Director” then in addition to Part-A of this sample tool to

this may also be used.

Boar

Name of the Director: ______________________________;

d Eva

Category: Independent

luati

RATINGS

COMMENTS

on

EVALUATION FACTOR

1

2

3

4

5

1. Director upholds ethical standards of integrity and probity.

2. Director exercises objective independent judgment in the best

interest of Company.

3. Director has effectively assisted the Company is implementing

best corporate governance practice and then monitors the

same.

4. Director helps in bringing independent judgment during board

deliberations on strategy, performance, risk management etc.

5. Director keeps himself/ herself well informed about the

9

Company and external environment in which it operates.

3

94

6. Director acts within his authority and assists in protecting the

legitimate interest of the Company, Shareholder and

employees.

7. Director maintains high level of confidentiality.

8. Director adheres to the applicable code of conduct for

independent directors.

Outstanding

Exceeds Expectation

Meets Expectation

Needs Improvement

Poor

Overall rating of

Director performance

Comment

.................………………………………………................................................…………………

................………………………………………................................................…………………

A G

................………………………………………................................................…………………

uide t

Please suggest three things that could improve Board’s performance.

Name of Director:

o B

a) ………………………………………………………………………

…………………………………………

oar

b) ………………………………………………………………………

Signature:

d Ev

c) ………………………………………………………………………

…………………………………………

alu

Date :

ati

…………………………………………

on

A

PART V

Guide

EVALUATION OF BOARD COMMITTEES

to

(By Board of Directors)

Boar

Criteria

1

2

3

4

5

How can the board d Ev

do it better or alu

differently

ation

Function and Duties

1 The Committee of the Board are appropriately constituted.

2 The terms of reference for the committee are appropriate with clear defined

roles and responsibilities.

3 Observing Committees terms of reference.

4 The composition of the committee is in compliance with the legal

requirement.

5 The amount of responsibility delegated by the Board to each of the

committees is appropriate.

6 The reporting by each of the Committees to the Board is sufficient.

95

96

7 The performance of each of the Committees is assessed annually against

the set goals of the committee.

8 Whether the terms of reference are adequate to serve committee’s

purpose?

9 The committee regularly reviews its mandate and performance.

10 Committee takes effective and proactive measures to perform its functions.

Management Relations

11 Adequate independence of the Committee is ensured from the Board.

12 Committee gives effective suggestion and recommendation.

13 Committee meetings are conducted in a manner that encourages open

communication and meaningful participation of its members.

A G

Committee Meetings and Procedures

uide t

14 Committee meetings have been organized properly and appropriate

o Bo

procedures were followed in this regard?

ard E

15 The frequency of the Committee meetings is adequate.

valua

16 Committee makes periodically reporting to the Board along with its

tio

suggestions and recommendations.

n

A G

Outstanding

Exceeds Expectation

Meets Expectation

Needs Improvement

Poor

uide t

Overall rating of

o B

Board performance

oard Ev

Comment

.................………………………………………................................................…………………

aluati

................………………………………………................................................…………………

on

................………………………………………................................................…………………

Please suggest three things that could improve Board’s performance.

Name of Director:

a) ………………………………………………………………………

…………………………………………

b) ………………………………………………………………………

Signature:

c) ………………………………………………………………………

…………………………………………

Date :

…………………………………………

The participation and effective functioning of the committee meetings the questions may remain the same as for Board meetings.

97

98

PART VI

CHAIRPERSON ASSESSMENT

(By each Board member)

RATINGS

COMMENTS

EVALUATION FACTOR

1

2

3

4

5

Managing Relationships

1. The Chairperson actively manages shareholder, board,

management and employee relationships and interests.

2. The Chairperson meets with potential providers of

equity and debt capital, if required.

3. The Chairperson manages meetings effectively and

A G

promotes a sense of participation in all the Board

ui

meetings.

de to

Leadership

Board

4. The Chairperson is an effective leader.

Evalu

5. The Chairperson promotes effective participation of all

ati

Board members in the decision making process.

on

A G

6. The Chairperson promotes the positive image of the

uid

Company.

e to Bo

7. The Chairperson promotes continuing training and

ard

development of directors.

Evalua

Outstanding

Exceeds Expectation

Meets Expectation

Needs Improvement

Poor

tion

Overall rating of

Chairperson’s performance

Comment

.................………………………………………................................................…………………

................………………………………………................................................…………………

................………………………………………................................................…………………

Please suggest three things that could improve Board’s performance.

Name of Director:

a) ………………………………………………………………………

…………………………………………

b) ………………………………………………………………………

Signature:

c) ………………………………………………………………………

…………………………………………

Date :

…………………………………………

99

10

SAMPLE BOARD ASSESMENT MODELS

0

Deloitte*

Sample Board Performance Form

Select the appropriate rating for each statement

0

Insufficient knowledge/ Not applicable

1

Strongly disagree

5

Strongly agree

0

1

2

3

4

5

Composition and Quality

1. Qualified board members are identified by sources independent of management (e.g., A G

independent board members assisted by an independent firm in the search for candidates).

uide to B

2. Board members have the appropriate qualifications to meet the objectives of the board’s oar

charter, including appropriate financial literacy.

d Eva

*

The document is a copyright of Deloitte LLP, an Ontario Limited Liability Partnership, the Canadian member firm of Deloitte Touche Tohmatsu lua

Limited. It is available at http://www.corpgov.deloitte.ca/en-ca/Pages/RolesAndResponsibilities/Performance.aspx

tion

The right to produce the document is received from the organisation.

A G

3. The board demonstrates integrity, credibility, trustworthiness, active participation, an ability uid

to handle conflict constructively, strong interpersonal skills, and the willingness to address e to

issues proactively.

Board

4. The board demonstrates appropriate industry knowledge and includes a diversity of Ev

experiences and backgrounds.

aluatio

5. Members of the board meet all applicable independence requirements.

n

6. The board participates in a continuing education program to enhance its members’

understanding of relevant risk, reporting, regulatory, and industry issues.

7. The board monitors compliance with corporate governance regulations and guidelines.

8. The board reviews its charter annually to determine whether its responsibilities are described adequately.

9. New board members participate in an orientation program to educate them on the organization, their responsibilities, and the organization’s activities.

10. The board chairman is an effective leader.

11. The board, in conjunction with the nominating committee (or its equivalent), creates a 10

succession and rotation plan for board members, including the board chairman.

1

10

Select the appropriate rating for each statement

0

1

2

3

4

5

2

Understanding the Business, including Risks

1. The board takes into account significant risks that may directly or indirectly affect theorganization. Examples include:

•

Regulatory and legal requirements

•

Concentrations (e.g., suppliers and customers)

•

Market and competitive trends

•

Financing and liquidity needs

•

Financial exposures

•

Business continuity

•

Organization reputation

•

Strategy execution

A

•

Management’s capabilities

Guid

•

Management override

e to

•

Fraud control

Bo

•

Organization pressures, including “tone at the top”

ard Ev

2. The board considers, understands, and approves the process implemented by

alu

management to effectively identify, assess, and respond to the organization’s key risks.

ation

A G

3. The board understands and approves management’s fraud risk assessment and has an

uid

understanding of identified fraud risks.

e to Bo

4. The board considers the organization’s performance versus that of its peers in a manner

ard

that enhances comprehensive risk oversight by using reports provided directly by

Ev

management to the board or at the full board meeting. These may include benchmarking

alu

information comparing the organization’s performance and ratios with industry and

atio

peers, industry trends, and budget analysis with explanations for areas where significant

n

differences are apparent.

Select the appropriate rating for each statement

0

1

2

3

4

5

Process and Procedures

1. The board develops a calendar that dedicates the appropriate time and resources

needed to execute its responsibilities.

2. Board meetings are conducted effectively, with sufficient time spent on significant or

emerging.

3. The level of communication between the board and relevant parties is appropriate;

the board chairman encourages input on meeting agendas from committee and board

1

members, management, the internal auditors, and the independent auditor.

03

104

4. The agenda and related information are circulated in advance of meetings to allow

board members sufficient time to study and understand the information.

5. Written materials provided to board members are relevant and concise.

6. Meetings are held with enough frequency to fulfill the board’s duties and at least quarterly, which should include periodic visits to organization locations with key

members of management.

7. The board maintains adequate minutes of each meeting.

8. The board and the compensation committee regularly review management incentive

plans to consider whether the incentive process is appropriate.

A Guid

9. The board meets periodically with the committee responsible for reviewing the

e t

organization’s disclosure procedures.

o Board

10. The board respects the line between oversight and management.

Evaluati

11. Board members come to meetings well prepared.

on

A G

Select the appropriate rating for each statement

0

1

2

3

4

5

uide

Oversight of the Financial Reporting Process, including Internal Controls

to Boa

1. The board considers the quality and appropriateness of financial accounting and

rd

reporting, including the transparency of disclosures.

Evalua

2. The board reviews the organization’s significant accounting policies.

tion

3. The board makes inquiries of the independent auditor, internal auditors, and

management on the depth of experience and sufficiency of the organization’s accounting

and finance staff.

4. The board reviews the management recommendation letters written by the

independent and internal auditors and monitors the process to determine that all

significant matters are addressed.

5. The board ensures that management takes action to achieve resolution when there are

repeat comments from auditors, particularly those related to internal controls.

6. Adjustments to the financial statements that resulted from the audit are reviewed by

the audit committee, regardless of whether they were recorded by management.

7. The board is consulted when management is seeking a second opinion on an accounting

1

or auditing matter.

05

106

Oversight of Audit Functions

8. The board understands the coordination of work between the independent and internal

auditors and clearly articulates its expectations of each.

9. The board appropriately considers internal audit reports, management’s responses,

and steps toward improvement.

10. The board oversees the role of the independent auditor from selection to termination

and has an effective process to evaluate the independent auditor’s qualifications and

performance.

A

11. The board considers the independent audit plan and provides recommendations.

Guide to

12. The board reviews the audit fees paid to the independent auditor.

Board E

13. The board comprehensively reviews management’s representation letters to the

valu

independent auditor, including making inquiries about any difficulties in obtaining the

ati

representations.

on

A G

Select the appropriate rating for each statement

0

1

2

3

4

5

uide

Ethics and Compliance

to Bo

1. Board members oversee the process and are notified of communications received

ard

from governmental or regulatory agencies related to alleged violations or areas of

Ev

non-compliance.

aluat

2. The board oversees management’s procedures for enforcing the organization’s code of

ion

conduct.

3. The board determines that there is a senior-level person designated to understand

relevant legal and regulatory requirements.

4. The board oversees the organization’s hotline or whistleblower process, reviews the

log of incoming calls that relate to possible fraudulent activity, and understands the procedures to prohibit retaliation against whistleblowers.

Monitoring Activities

5. An annual performance evaluation of the board is conducted and any matters that

require follow-up are resolved and presented to the full board.

Overall evaluation

Use the space below to conclude on the overall results taking into account the

quantitative results of this self-assessment and qualitative factors not considered

10

above.

7

10

SAMPLE II

8

GENOME CANADA**

Introduction

The purpose of this evaluation tool is to assist the Board of Directors to:

•

understand and recognize what is working well;

•

identify areas for improvement;

•

discuss and agree on priorities for change which can be addressed in the short-and-long-term;

•

agree on an action plan.

It is intended that this evaluation tool will be completed annually by each director of Genome Canada’s Board of Directors. The Corporate Governance Committee will have responsibility to oversee the implementation of this evaluation tool, including discussing a summary of the results, and preparation of a final report with recommendations to the Board A of Directors.

Guid

In order to encourage open and frank evaluations, as well as offer anonymity to respondents, the evaluation process e to shall be directed by the Corporate Secretary, who will mail the questionnaire to each director as well as collate the Bo results into a report which will be submitted to the Corporate Governance Committee.

ard E

The questionnaire is structured in two parts:

valu

PART 1 – Director Self Assessment

ation

PART 2 – Board of Directors Evaluation

A G

Both parts of the questionnaire are to be completed and sealed in the attached envelope and returned to the Corporate uid Secretary.

e to

PART 1 - DIRECTOR SELF ASSESSMENT

Board

Background

Eval

Genome Canada does not undertake a formal evaluation process for each director. Rather, it promotes a self uat assessment by directors of their own performance.

ion

Assessment Criteria for Individual Directors

The following criteria are useful in determining how effective a Director’s performance results in:

•

contributing to corporate leadership and stewardship

•

contributing to achievement of corporate objectives

•

understanding Genome Canada’s mandate, strategic plan, and key issues

•

constructive contribution to resolution of issues at meetings

•

communicating expectations & concerns clearly

•

obtaining adequate, relevant & timely information

•

promotion of corporation’s interests externally

•

interpersonal relationships with other directors and management

109

•

attendance, confidentiality and preparation for meetings

11

PART 1 - DIRECTOR SELF-ASSESSMENT

0

Rating Scale :

On a scale from 1 to 5 with 1 being “ Strongly Disagree’’ and 5 being ‘’ Very Strongly Agree” please rate your performance as a director based on the following :

Assessment Criteria

Strongly

Disagree

Agree

Strongly

Very

Disagree

Agree Strongly

Agree

1

2

3

4

5

1 I have a good understanding of Genome Canada’s

mandate, strategic plan and key issues.

2 I understand the difference between governing and

managing a corporate enterprise and avoid intruding

A

on management’s responsibilities.

Guid

3 My special skills/ expertise provide a unique

e to

contribution to the board’s overall effectiveness.

Boa

4 I have good interpersonal relationships with the other

rd

directors.

Evalua

5 I think, speak and act independently in relation to

tio

decisions the board must make.

n

A G

6 I facilitate and encourage change when it would

uid

improve board processes.

e to Bo

7 I make a measured and appropriate contribution to

ard

board discussions and deliberations.

Evalu

8 I am sensitive to the complex relationships which

atio

naturally exist among the board chair , the independent

n

directors and the president and CEO.

9 I come to meetings well prepared- having done the

necessary prior reading and having consulted other

directors and/or management if required.

10 I have a good knowledge of the responsibilities of

Genome Canada’s management team and am able to

consult with members of the management team , as

required.

11 I promote Genome Canada’s corporate interests

externally.

12 I respect the confidentiality of business information and

11

our board’s deliberations.

1

112

13 I understand the legal and fiduciary obligations of

individual directors and of the board as a whole.

14 I have a sufficient knowledge of Genome Canada’s as a

legal entity and not-for-profit corporation, as well as

an understanding of its relationship with industry

Canada and other federal departments.

15 When it is appropriate I communicate privately and

constructively with the chair and/or President and CEO

between meetings.

16 I expect high levels of performance from myself, my

fellow directors and management.

17 I ask probing questions focused on policy and strategy

A

rather than tactics and details.

Guid

18 I insist that I and the other directors receive information

e t

necessary for decision making.

o Boa

19 I make a meaningful contribution when I serve on a

rd

board committee.

Evalua

20 My attendance rate at meetings is satisfactory.

tion

A G

21 I serve as a resource to the board and to management.

uide to

22 I introduce new thinking and a fresh perspective to

Bo

problem solving.

ard Ev

23 My attitude is positive, supportive and enthusiastic.

aluati

24 My personal value and ethical system is congruent with

on

that of the board and the corporation.

Additional Comments:

PART 2 - BOARD OF DIRECTORS EVALUATION

Background

The Board of Directors should undergo on an annual basis, a review of its performance against established criteria, for purposes of assessing its effectiveness.

Assessment Criteria

The following criteria assist in determining how effective the Board’s performance is in:

•

leadership

•

stewardship

11

•

contributing to achievement of corporate objectives

3

11

•

timely resolution of issues at meetings

4

•

communications of expectations & concerns clearly

•

obtain adequate, relevant & timely information

•

review & approval of strategic and operational plans, objectives, budgets

•

regular monitoring of corporate results against projections

•

identify, monitor & mitigate significant corporate risks

•

assess policies, structures & procedures

•

direct, monitor & evaluate President and CEO

•

review management’s succession plan

•

effective meetings

A G

•

formal communications policy for corporation

uide

•

corporation’s approach to governance

to Bo

•

accountability

ard E

•

assuring appropriate board size, composition, independence, structure

valu

•

clearly defining roles & monitoring activities of committees

ation

•

review of corporation’s ethical conduct

A G

PART 2 BOARD OF DIRECTORS EVALUATION

uide

Rating Scale

to Bo

On a scale from 1 to 5 with 1 being “Strongly Disagree’’ and 5 being ‘’Very Strongly Agree’’ please rate the ard Board’s performance against the following criteria.

Eval

Note: Additional comments are welcome.

uation

Assessment Criteria

Strongly

Disagree

Agree

Strongly

Very

Disagree

Agree Strongly

Agree

1

2

3

4

5

Strategic Plan and Performance

1 The Board understands the vision, mission and

objectives of Genome Canada.

2 The Board is involved in the strategic planning process,

including corporate goals, objectives and overall

operating and financial plans to achieve them.

3 The Board focuses on strategic issues and regularly

assesses performance against its strategic plans and

11

goals.

5

116

4 The Board monitors financial and other indicators

throughout the year, and takes appropriate action as

required.

5 The Board regularly assesses strategic and operating

risks and takes appropriate action as required.

6 The Board understands the legal requirements and

obligations under which they act as a Board; i.e., bylaws,

funding agreement, corporate governance manual.

7 The Board has adopted and maintains a senior

management succession planning process and is

satisfied with succession planning for the CEO.

8 The Board appropriately relates the compensation of

the president and CEO to performance.

A Gu

9 The Board is diligent in verifying the integrity of its

ide

financial and management controls and systems.

to Bo

10. The Board is made aware of Genome Canada’s

ard

communications with key stakeholders; i.e. media,

Ev

government, general public.

aluat

Additional Comments:

ion

A G

Management Interaction

uide t

11 The Board has sufficient formal and informal contact

o B

with the President and CEO.

oard

12 The Board has sufficient formal and informal contact

Eva

with other management personnel.

luati

13 The Board is able function independently of

on

Management and has the mechanisms in place to

maintain that distinction.

14 The Board understands the difference between its role

and that of management.

15 The Board receives appropriate advice and counsel from

management.

Additional Comments

Board of Director Operations

16 The Board has an effective process for maintaining its size

and compositions to provide appropriate expertise and

11

experience to meet the best interests of Genome Canada.

7

118

17 The Board has an adequate process for orientating and

educating new Directors.

18 The number and length of Board meetings is

appropriate.

19 The amount of time spent on discussions on strategic

and general issues is sufficient.

20 The chair conducts the meetings in a respectful manner

that ensure open communication and meaningful

participation.

21 The chair communicates with directors between

meetings as necessary and appropriate.

22 The amount of information received in board packages

A G

is appropriate for discussion and decision making

uid

purposes.

e to

23. The Board materials are received sufficiently in advance

Boa

to adequately prepare for meetings.

rd Eva

Additional Comments:

luation

A G

Committee Structure ° Executive ° Audit ° Investment ° Election ° Corporate Governance ° Compensation uide t

24 The Committee structure is appropriate.

o Boa

25 The delegation of responsibilities by the Board to its

rd

committee is appropriate.

Evalu

26 The composition of the committee is appropriate.

ation

27 The number and length of committee meetings is

appropriate.

28 The meetings are conducted in a manner that ensures

open communication and meaningful participation.

29 The amount of information received is appropriate for

discussion and decision making purposes

30 The materials are received sufficiently in advance to

adequately prepare for meetings.

31 The committee regularly reviews its mandate and

performance.

Additional Comments:

119

12

List the top three priorities requiring attention in order for the Board of Directors to function more effectively.

0

1

2

3

A Guide to Board

** The document is a copyright of Genome Canada. The document is available at http://www.genomecanada.ca/medias/PDF/ Ev EN/GenomeCanadaBoardDirectorsAnnualQuestionnaire.pdf

alua

The right to produce the document is received from the organisation.

tion

A G

SAMPLE III

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KPMG

to Bo

AUDIT COMMITTEE INSTITUTE, IRELAND***

ard

More Satisfied 1 2 3 (Tick any one)

Eval

Less satisfied 4 5 (Tick any one)

uation

A. Creating an effective board

1

2

3

4

5

What could the board do

better or differently?

1. Are you satisfied that the board has clearly documented its role

and responsibilities ( e.g. schedule of matters reserved for the

board , split of the chairman’s role and that of the CEO)?

2. Are you satisfied that board members, both individually and

collectively, understand what is expected of them (e.g. determining

the company’s strategic aims)?

3. Are you satisfied that all non executive directors are independent

of the organisation’s management and exercise their own

judgement; voice their own opinions; and act freely from any

conflicts of interest?

4. Are you satisfied with the process by which board members are

12

appointed?

1

12

5. Are you satisfied with the appropriateness of the succession plans

2

in place?

6. Are you satisfied that board members, as a whole, have sufficient

skills, experience, time and resources to undertake their duties?

7. Are you satisfied that there is sufficient diversity in the boardroom

(e.g. diversity of experience, balance between non executive and

executive director is appropriate)?

8. Are you satisfied that board members have a sufficient

understanding of the organisation and the sector in which it

operates?

9. Are you satisfied that all board member demonstrate the highest

A

level of integrity (including maintaining utmost confidentiality and

G

identifying disclosing and managing conflicts of interest).

uide t

10. Are you satisfied with the level of ‘secretarial support’ placed at

o B

the board’s disposal?

oard E

11. Are you satisfied with the process in place to make funds available

val

to the board to take independent legal, accounting or other advice

uat

when it reasonably believes it necessary to do so?

ion

A G

B. Running an effective board

1

2

3

4

5

What could the board do

uid

better or differently?

e to B

1. Are you satisfied that the board has in place a set of objectives that

oar

seek to enhance its effectiveness?

d Eval

2. Are you satisfied with the chairman’s leadership style (e.g., are

uat

they decisive, open minded and courteous; do they set a good

ion

example, allow members to contribute and hold members to high

standards; do they relate well to other members/attendees, deal

effectively with dissent and work constructively towards

consensus)?

3. Are you satisfied that the board’s workload is dealt with effectively?

4. Are you satisfied that board members work together constructively

as a team?

5. Are you satisfied that board meetings are conducted in a manner

which encourages open discussion, healthy debate and allows each

board member to clearly add value to discussion and decisions?

6. Are board meetings conducted in an atmosphere of creative

12

tension?

3

124

7. Are you satisfied that the relationship between a) the board and b)

the CEO, CFO and members of the senior management team strikes

the right balance between challenge and mutuality?

8. Are you satisfied that the board’s discussions enhance the quality

of management’s decision making (e.g.: does the board engage

those reporting to the board in dialogue that stimulates and

enhance their thinking and performance)?

9. Are you satisfied that the board’s schedule of matters is up to date

and regularly reviewed?

10. Are you satisfied that the board’s meeting arrangements (e.g.,

frequency, timing, duration, venue and format) enhance its

effectiveness?

A G

11. Are you satisfied that the board’s meeting agenda has sufficient

uid

input from all board members?

e to B

12. Are you satisfied that board meetings allow sufficient time for the

oa

discussion of substantive matters?

rd Eva

13. Are you satisfied that board meeting agendas and related

lua

background information are circulated in a timely manner to enable

tion

full and proper consideration to be given to the important issues?

A G

14. Are you satisfied with the quality of the board papers (e.g., not

uid

overly lengthy and clearly explain the key issues and priorities)?

e to Boa

15. Are you satisfied that the board has the appropriate committees

rd

with necessary chargers?

Evaluat

16. Are you satisfied that the board is adequately informed of each

ion

committee’s activities?

17. Are you satisfied that private meetings without the executive

directors present are useful?

18. Are you satisfied that the board’s meeting minutes are clear,

accurate, consistent, complete and timely?

19. Are you satisfied that outstanding actions arising from board

meetings are properly followed up?

20. Are you satisfied that the processes in place for ensuring the board

is kept fully informed on all material matters between meetings

(including appropriate external information e.g. emerging risks and

12

material regulatory changes) is working effectively?

5

12

C. Professional development

1

2

3

4

5

What could the board do

6

better or differently?

1. Are you satisfied that new board members are given an appropriate

induction programme covering issues like: the role of the director;

its terms of references; members’ expected time commitment; an

overview of the organisation and its strategic objectives?

2. Are you satisfied with timeliness and appropriateness of ongoing

professional development received by the board (e.g. regulatory

matters director’s liability)?

A

3. Are you satisfied that board members are afforded appropriate

Gu

opportunities to attend formal courses and conferences, internal

ide

talks and seminars, and briefings by external advisers such as the

to

organisation’s auditors and lawyers?

Board Ev

4. Are you satisfied that any induction and professional development

alu

programmes adequately equip board members to understand the

ati

business environment in which organisation operates?

on

A G

D. Strategic foresight

1

2

3

4

5

What could the board do

uid

better or differently?

e to Boa

1. Are you satisfied that the board devotes significant time to

rd

determining (via management and other sources) the emerging

Eva

issues that could affect the organisation in the future?

luation

2. Are you satisfied that the board has a good understanding of the

company’s key drivers of performance?

3. Are you satisfied that the board appropriately uses scenario

planning as a fundamental process in the evaluation of strategic

risks?

4. Are you satisfied that the majority of the board’s time is spent on

issues relating to the strategic direction and not day-to-day

management responsibilities?

5. Are you satisfied that the organisation’s purpose (mission) and

vision been defined and clearly communicated to all levels within

1

the organisation?

27

12

E. Stewardship

1

2

3

4

5

What could the board do

8

better or differently?

1. Are you satisfied that the board understands and fulfils its

stewardship role?

2. Are you satisfied that the company’s risk management processes

provide to the board a full understanding of the high risk issues

that could impact the organisation?

3. Are you satisfied that the board understands the details of the

control assurance framework including reporting scope and

timeliness?

A Gu

4. Are you satisfied that board members are fully informed in relation

ide

to the issues not covered by the existing Directors and Officers

to

Insurance?

Board E

5. Are you satisfied that there is an adequate policy in place for dealing

val

with potential conflicts of interest and confidential information?

uation

A G

F. Performance evaluation

1

2

3

4

5

What could the board do

uid

better or differently?

e to B

1. Are you satisfied that your existing range of financial and non-

oar

financial performance measures are board enough to monitor

d E

management’s performance?

valua

2. Are you satisfied that your existing performance measures are

tion

linked to the organisation’s strategy?

3. Are you satisfied that the organisation’s performance is adequately

benchmarked against its peers?

4. Are you satisfied that management’s remuneration is appropriately

linked to the organisation’s performance and an appropriate peer

group?

5. Are you satisfied that the board has in place an appropriate process

for regular board, committee and individual board member

evaluation?

6. Are you satisfied that all actions arising from performance

evaluation are followed up?

7. Are you satisfied that the board performance assessment process

12

enhances board effectiveness?

9

13

G. Managing management

1

2

3

4

5

What could the board do

0

better or differently?

1. Are you satisfied that the board has an agreed process to adequately

support the CEO?

2. Are you satisfied that the board has in place a rigorous process to

evaluate the performance of the CEO, with input from all non

executive board members?

3. Are you satisfied that the board is appropriately engaged in CEO/

senior management succession planning?

4. Are you satisfied that there are appropriate delegation authorities

in place for management and that they are regularly reviewed?

A

5. Are you satisfied that the organisation’s culture encourages board

Gu

members to discuss agenda and other issues with senior

ide

management?

to Bo

6. Are you satisfied that bad news is communicated to the board as it

ard

arises?

Evalu

7. Are you satisfied that the CEO and senior management receive

ati

constructive support from the board?

on

A G

H. Value creation

1

2

3

4

5

What could the board do

uid

better or differently?

e to B

1. Are you satisfied that the board has clearly identified the

oar

organisation’s major stakeholders and the ‘value’ each requires?

d Evalua

2. Are you satisfied that there are systems in place to allow the board

tio

to measure whether the organisation is creating or destroying major

n

stakeholder value?

3. Are financial and non financial value drivers in place to focus on the

enhancement of value ?

4. Is your existing decision making process (including the present

structure of management proposals) adequate to properly assess

whether proposals create major stakeholder value?

5. Is your organisation creating major stakeholder value?

6. Does the board/ management have adequate mechanisms for

1

communicating with major stakeholders?

31

13

I.

Corporate culture

1

2

3

4

5

What could the board do

2

better or differently?

1. Are you satisfied that the board’s comprehension of the

organisation’s purpose, vision and strategic plan is reflected in

actions taken in the boardroom?

2. Are you satisfied that the board plays an appropriate pro- active

role in change?

***

The document is the copyright of KPMG Audit Committee Institute, Ireland. The document is available at http://

www.auditcommitteeinstitute.ie/documents/101878_ Board_ Effectiveness_ Quest_ Flyer_ Feb12% 20% 282%29.pdf The right to produce the document has been received from the organisation.

A Guide to Board Evaluation

A Guide to Board Evaluation

133

SEBI’s Guidance Note on

Board Evaluation

A. Background of Board Evaluation in India

India has moved recently from a voluntary Board evaluation under

Clause 49 of the Listing Agreement (SEBI) and Corporate Governance

Voluntary Guidelines of MCA (2009) to a mandatory Board evaluation

under Companies Act, 2013 and SEBI (Listing Obligations and

Disclosure Requirements) Regulations, 2015 (SEBI LODR).

The Companies Act, 2013 and SEBI LODR provide for several

mandatory provisions for Board Evaluation on who is to be evaluated,

who is to evaluate such persons, disclosure requirements, etc. The

main provisions of Companies Act, 2013 and SEBI LODR on Board

Evaluation as applicable to listed entities is attached at Annexure

A1 and summarized as under:

1. Role of the Nomination and Remuneration Committee (NRC):

a. NRC shall formulate of criteria for evaluation of performance

of independent directors and the board of directors.

b. NRC shall carry out evaluation of every director’s performance.

c. NRC shall determine whether to extend or continue the term

of appointment of the independent director, on the basis of

the report of performance evaluation of independent

directors.

2. Role of independent directors:

a. In the meeting of independent directors of the company

(without the attendance of non-independent directors and

management), such directors shall:

(i) review the performance of non-independent directors and

the Board as a whole.

(ii) review the performance of the Chairperson of the

133

134

A Guide to Board Evaluation

company, taking into account the views of executive

directors and non-executive directors.

(iii) assess the quality, quantity and timeliness of flow of

information between the company management and the

Board that is necessary for the Board to effectively and

reasonably perform their duties.

b. The independent directors shall bring an objective view in

the evaluation of the performance of board and management.

3. Evaluation of independent directors : The performance evaluation

of independent directors shall be done by the entire Board of

Directors, excluding the director being evaluated.

4. Disclosure requirements

a. A statement indicating the manner in which formal annual

evaluation has been made by the Board of its own

performance and that of its committees and individual

directors shall be included in the report by Board of Directors

placed in the general meeting.

b. The performance evaluation criteria for independent directors

shall be disclosed in the section on the corporate governance

of the annual report.

B. Subject of Evaluation

As required under SEBI LODR and Companies Act, the evaluation

of the Board involves multiple levels:

1. Board as a whole

2. Committees of the Board

3. Individual Directors and Chairperson (including Chairperson,

CEO, Independent Directors, Non-independent directors, etc.)

C. Process of Evaluation

The process of evaluation is generally elaborate, stretching across

pre-evaluation, evaluation and post- evaluation processes including,

inter alia, the following:

1. Identifying the objectives of evaluation

Identifying the objectives of the evaluation is the first and a

crucial step in the Board Evaluation process. Clear identification

of objectives is key to streamlining the process of evaluation,

analyzing the results and taking appropriate and corrective action.

A Guide to Board Evaluation

135

The objectives may be:

(a) General objectives- Standard Objectives for all Board

evaluations of the entity

(b) Specific objectives- Objectives specific to the current Board

evaluation based on recent events, new issues of concern,

etc.

2. Criteria of evaluation

The criteria for evaluation under different categories depend on

the role the person/group plays in the organization. For instance,

the evaluation of the Chairperson may evaluate the person’s

leadership, coordination and steering skills, etc. which may be

different from the role of other directors. The criteria for every

evaluation may be decided at every level depending on the

functions, responsibilities, competencies required, nature of

business, etc. As per SEBI LODR, the primary responsibility of

formulation of criteria lies on the NRC.

Indicative criteria that may be used for different directors/groups

are:

A. Board as a whole

a. Structure of the Board:

i. Competency of directors: (Different competencies

may be identified as may be required for effective

functioning of the entity and the Board) - Whether

Board as a whole has directors with a proper mix of

competencies to conduct its affairs effectively.

ii. Experience of directors: Whether Board as a whole

has directors with enough experience to conduct its

affairs effectively.

iii. Mix of qualifications: Whether Board as a whole has

directors with a proper mix of qualifications to conduct

its affairs effectively.

iv. Diversity in Board under various parameters:

Gender/background/ competence/experience, etc. –

Whether there is sufficient diversity in the Board on

the aforesaid parameters.

136

A Guide to Board Evaluation

v. Appointment to the Board: Whether the process of

appointment to the board of directors is clear and

transparent and includes provisions to consider

diversity of thought, experience, knowledge,

perspective and gender in the board of directors.

b. Meetings of the Board

i. Regularity of meetings: Whether meetings are being

held on a regular basis

ii. Frequency:

1. Whether the Board meets frequently

2. Whether the frequency of such meetings is

enough for the Board to undertake its duties

properly

iii. Logistics: Whether the logistics for the meeting is

being handled properly- venue, format, timing, etc.

iv. Agenda:

1. Whether the agenda is circulated well before the

meeting

2. Whether the agenda has all relevant information

to take decision on the matter

3. Whether the agenda is up to date, regularly

reviewed and involves major substantial decisions

4. Whether the quality of agenda and Board papers

is up to the mark (explains issues properly, not

overly lengthy, etc.)

5. Whether outstanding items of previous meetings

are followed-up and taken up in subsequent

agendas

6. Whether the time allotted for the every item

(especially substantive items) in the agenda of

the meeting is sufficient for adequate discussions

on the subject

7. Whether the Board is able to finish discussion

and decision on all agenda items in the meetings

A Guide to Board Evaluation

137

8. Whether adequate and timely inputs are taken

from the Board members prior to setting of the

Agenda for the meeting

9. Whether the agenda includes adequate

information on Committee’s activities

v. Discussions and dissent:

1. Whether the Board discusses every issue

comprehensively and depending on the

importance of the subject

2. Whether the environment of the meeting induces

free-flowing free flowing discussions, healthy

debate and contribution by everyone without any

fear or fervour

3. Whether the discussions generally add value to

the decision making

4. Whether the Board tends towards groupthink and

whether critical and dissenting suggestions are

welcomed

5. Whether all members actively participate in the

discussions

6. Whether overall, the Board functions

constructively as a team

vi. Recording of minutes

1. Whether the minutes are being recorded properly-

clearly, completely, accurately and consistently.

2. Whether the minutes are approved properly in

accordance with set procedures.

3. Whether the minutes are timely circulated to all

the Board members

4. Whether dissenting views are recorded in the

minutes

vii. Dissemination of information

1. Whether all the information pertaining to the

meeting are disseminated to the members timely,

frequently, accurately, regularly

138

A Guide to Board Evaluation

2. Whether Board is adequately informed of material

matters in between meetings

c. Functions of the Board

(Functions of the Board have been specified in detail in

Chapter II of SEBI LODR and Companies Act)

(i) Role and responsibilities of the Board: Whether the

same are clearly documented E.g. Difference in roles

of Chairman and CEO, Matters reserved for the Board,

etc.

( ii) Strategy and performance evaluation

1. Whether significant time of the Board is being

devoted to management of current and potential

strategic issues

2. Whether various scenario planning is used to

evaluate strategic risks

3. Whether the Board overall reviews and guides

corporate strategy, major plans of action, risk

policy, annual budgets and business plans, sets

performance objectives, monitored implemen-

tation and corporate performance, and oversees

major capital expenditures, acquisitions and

divestments.

(iii) Governance and compliance

1. Whether adequate time of the Board is being

devoted to analyse and examine governance and

compliance issues

2. Whether the Board monitors the effectiveness of

its governance practices and makes changes as

needed

3. Whether the Board ensures the integrity of the

entity ’s accounting and financial reporting

systems, including the independent audit, and that

appropriate systems of control are in place, in

particular, systems for risk management, financial

and operational control, and compliance with the

law and relevant standards.

A Guide to Board Evaluation

139

4. Whether the Board oversees the process of

disclosure and communications.

5. Whether the Board evaluates and analyses the

compliance certificate from the auditors /

practicing company secretaries regarding

compliance of conditions of corporate

governance.

(iv) Evaluation of Risks

1. Whether Board undertakes a review of the high

risk issues impacting the organization regularly

2. In assessment of risks, whether it is ensured that,

while rightly encouraging positive thinking, these

do not result in over-optimism that either leads

to significant risks not being recognised or

exposes the entity to excessive risk.

(v) Grievance redressal for Investors

Whether the Board regularly reviews the grievance

redressal mechanism of investors, details of

grievances received, disposed of and those remaining

unresolved.

(vi) Conflict of interest

1. Whether the Board monitors and manages

potential conflicts of interest of management,

members of the board of directors and

shareholders, including misuse of corporate assets

and abuse in related party transactions

2. Whether a sufficient number of non-executive

members of the board of directors capable of

exercising independent judgement are assigned

to tasks where there is a potential for conflict of

interest

(vii) Stakeholder value and responsibility:

1. Whether the decision making process of the

Board is adequate to assess creation of

stakeholder value

140

A Guide to Board Evaluation

2. Whether the Board has mechanisms in place to

communicate and engage with various

stakeholders

3. Whether the Board acts on a fully informed basis,

in good faith, with due diligence and care, with

high ethical standards and in the best interest of

the entity and the stakeholders

4. Whether the Board treats shareholders and

stakeholders fairly where decisions of the board

of directors may affect different shareholder/

stakeholder groups differently

5. Whether the Board regularly reviews the Business

Responsibility Reporting / related corporate social

responsibility initiatives of the entity and

contribution to society, environment etc.

(viii) Corporate culture and values: Whether the Board

sets a corporate culture and the values by which

executives throughout a group shall behave

(ix) Review of Board evaluation: Whether the Board

monitors and reviews the Board evaluation

framework.

(x) Facilitation of independent directors: Whether the

Board facilitates the independent directors to perform

their role effectively as a member of the board of

directors and also a member of a committee of board

of directors and any criticism by such directors is taken

constructively.

d. Board and management

(i) Evaluation of performance of the management and

feedback:

1. Whether the Board evaluates and monitors

management, especially the CEO regularly and

fairly and provides constructive feedback and

strategic guidance

2. Whether the measures used are broad enough to

monitor performance of the management

A Guide to Board Evaluation

141

3. Whether the management’s performance is

benchmarked against industry peers

4. Whether remuneration of the management is in

line with its performance and with industry peers

5. Whether remuneration of the Board and the

management is aligned with the longer term

interests of the entity and its shareholders

6. Whether the Board selects, compensates,

monitors and, when necessary, replaces key

managerial personnel based on such evaluation

7. Whether the Board ‘steps back’ to assist

executive management by challenging the

assumptions underlying strategy, strategic

initiatives (such as acquisitions), risk appetite,

exposures and the key areas of the entity’s focus

(ii) Independence of the management from the Board:

Whether the level of independence of the

management from the Board is adequate

(iii) Access of the management to the Board and Board

access to the management: Whether the Board and

the management are able to actively access each

other and exchange information

(iv) Secretarial support: Whether adequate secretarial

and logistical support is available for conducting

Board meetings

(v) Fund availability: Whether sufficient funds are made

available to the Board for conducting its meeting

effectively, seeking expert advice E.g. Legal,

accounting, etc.

(vi) Succession plan: Whether an appropriate and

adequate succession plan is in place and is being

reviewed and overseen regularly by the Board

e. Professional development

(i) Whether adequate induction and professional

development programmes are made available to new

and old directors

142

A Guide to Board Evaluation

(ii) Whether continuing directors training is provided to

ensure that the members of board of directors are

kept up to date

B. Committees of the Board

a. Mandate and composition: Whether the mandate,

composition and working procedures of committees of

the board of directors is clearly defined and disclosed.

b. Effectiveness of the Committee: Whether the Committee

has fulfilled its functions as assigned by the Board and

laws as may be applicable

(For different Committees, different functions may be laid

out as sub-criteria for evaluation)

c. Structure of the Committee and meetings:

(i) Whether the Committees have been structure

properly and regular meetings are being held

(ii) In terms of discussions, agenda, etc. of the meetings,

similar criteria may be laid down as specified above

for the entire Board

d. Independence of the Committee from the Board:

Whether adequate independence of the Committee is

ensured from the Board

e. Contribution to decisions of the Board: Whether the

Committee’s recommendations contribute effectively to

decisions of the Board.

C. Individual Directors and Chairperson (including

Chairperson, CEO, Independent Directors, Non-

independent directors, etc.)

General

a. Qualifications: Details of professional qualifications of

the member

b. Experience: Details of prior experience of the member,

especially the experience relevant to the entity

c. Knowledge and Competency:

(i) How the person fares across different competencies

as identified for effective functioning of the entity

A Guide to Board Evaluation

143

and the Board (The entity may list various

competencies and mark all directors against every

such competency)

(ii) Whether the person has sufficient understanding and

knowledge of the entity and the sector in which it

operates

d. Fulfillment of functions: Whether the person understands

and fulfills the functions to him/her as assigned by the

Board and the law (E.g. Law imposes certain obligations

on independent directors)

e. Ability to function as a team: Whether the person is able

to function as an effective team- member

f.

Initiative: Whether the person actively takes initiative

with respect to various areas

g. Availability and attendance: Whether the person is

available for meetings of the Board and attends the

meeting regularly and timely, without delay.

h. Commitment: Whether the person is adequately

committed to the Board and the entity

i.

Contribution: Whether the person contributed effectively

to the entity and in the Board meetings

j.

Integrity: Whether the person demonstrates highest level

of integrity (including conflict of interest disclosures,

maintenance of confidentiality, etc.)

Additional criteria for Independent director:

a. Independence: Whether person is independent from the entity

and the other directors and there if no conflict of interest

b. Independent views and judgement: Whether the person

exercises his/ her own judgement and voices opinion freely

Additional criteria for Chairperson:

a. Effectiveness of leadership and ability to steer the meetings:

Whether the Chairperson displays efficient leadership, is

open-minded, decisive, courteous, displays professionalism,

able to coordinate the discussion, etc. and is overall able to

steer the meeting effectively.

144

A Guide to Board Evaluation

b. Impartiality: Whether the Chairperson is impartial in

conducting discussions, seeking views and dealing with

dissent, etc.

c. Commitment: Whether the Chairperson is sufficiently

committed to the Board and its meetings

d. Ability to keep shareholders’ interests in mind: Whether the

Chairperson is able to keep shareholders’ interest in mind

during discussions and decisions.

Different criteria may be assigned different weights depending

on the organisation’s requirements, circumstances, outcome of

previous assessments, stage of Board’s maturity, etc. Instead of

the questionnaire in a simple yes/no format, it is desirable that

it provides scope for grading, additional comments, suggestions,

etc.

3. Method of evaluation:

As a global best practice, the method of evaluation is generally

in 2 ways:

a. Internal assessment

b. Assessment by external experts

Internal assessment:

Internal assessment of the Board is crucial. Who should evaluate

whom is provided in the Companies Act and SEBI LODR as

specified above.

The internal assessment may be done by following methods:

a. A detailed Questionnaire to be circulated to individual

directors, Committees, Board, etc.

b. Oral assessments provided by the person on interviews

If deemed fit, the questionnaire may enable written answers to

be submitted on a confidential basis. If due to various reasons,

members are not willing to provide written inputs, the

Chairperson or any other person may take initiative and obtain

views of such members on a confidential basis.

Assessment by external experts:

Use of external experts imparts an independence to the

A Guide to Board Evaluation

145

evaluation process and therefore is used by many entities

globally. However, care must be taken to ensure that the external

assessor is not a related party or conflicted due to closeness of

the Board to ensure impartiality.

Such external assessment may be done based on questionnaires/

interviews or a combination of the two and done on a regular

basis. Such external assessment complements the internal

assessment and adds an objective aspect to the evaluation

process.

Effective use of Information Technology through use of board

evaluation software, applications, etc. can also play a facilitating

role.

D. Feedback

Providing feedback to the individual directors, the Board and the

Committees is crucial for success of Board Evaluation. On

collation of all the responses, the feedback may be provided in

one or more of the following ways:

a. Orally given by Chairman/ external assessor or any other

suitable person to

i.

Each Member separately

ii. To the entire Board

iii. To the Committees

b. A written assessment to every member, Board and Committee

The active role of the Chairperson is desirable in providing

feedback to the members. If members are not comfortable to

open individual assessments, provision for confidentiality may

be made where possible. For effectiveness of the evaluation, it

is essential that the feedback be given honestly and without

bias.

E. Action Plan

Based on the analysis of the responses, the Board may prepare

an action plan on:

-

Areas of improvement including training, skill building, etc.

as may be required for Board members

146

A Guide to Board Evaluation

-

List of actions required detailing:

o Nature of actions

o Timeline

o Person responsible for implementation

o Resources required, etc.

-

Review of the actions within a specific time period

The action plan may be prepared by the Board in a comprehensive

manner. Suggestions under the external assessment, individual

member feedback, etc. may be taken into account while drafting

the action plan.

F. Disclosure requirements

SEBI LODR and Companies Act requires disclosure of manner of

formal annual evaluation of the Board, its committees and

individual directors and of performance evaluation criteria for

independent directors to the shareholders on an annual basis.

In addition, for more transparency, many entities worldwide

voluntarily provide additional disclosures including the results

of the Board evaluation, action taken on the basis of the

evaluation, current status, etc. to various stakeholders.

G. Frequency of Board Evaluation

As per SEBI LODR and Companies Act, the Board Evaluation is

required to be done once a year. The entity, if it so desires, may

also conduct such evaluation more frequently. Since Board

evaluation is a continuous process, it is felt that feedback

provided to the members during meetings and otherwise, whether

oral or written, is more effective for continuous improvement

and ideally complements the annual evaluation process.

Many entities globally also complement the internal assessment

with external assessment at regular intervals to impart objectivity

to the process.

H. Responsibility

The responsibility of Board evaluation lies on different persons

depending on the subject of evaluation as per Companies Act

and SEBI LODR.

A Guide to Board Evaluation

147

However, it is found that on a global basis, generally the primary

role of steering the whole process of Board evaluation and of

ensuring its effectiveness in improving the Board efficiency lies

on the Chairperson. Therefore, to achieve maximum benefit of

the process, the role and function of Chairperson in Board

Evaluation needs to be laid out clearly in advance.

I. Review

Board evaluation is not a static process and requires periodical

review for improvement. The responsibility of such review of the

evaluation process lies with the Board of Directors in accordance

with SEBI LODR.

Such review may involve the following:

a. Whether objectives and criteria for evaluation are adequate

or needs to be changed/ updated

b. Whether the process/method of evaluation is appropriate

for individual members, Committees and the Board

c. Whether the actions based on the Board evaluation is being

followed up on a timely basis

d. Whether the Board evaluation has enhanced effectiveness

of the Board

e. Whether the review of the process is being done on a regular

basis

f.

Whether feedback of the members to improve the process is

being taken into account

Such review may be done based on feedback from management,

Board members, Chairperson, external assessors, various

stakeholders, etc.

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A Guide to Board Evaluation

Annexure A1

Main provisions under Companies Act with respect to Board

Evaluation

Section 134(3) - There shall be attached to statements laid

before a company in general meeting, a report by its Board of

Directors, which shall include—

(p) in case of a listed company and every other public company

having such paid-up share capital as may be prescribed, a

statement indicating the manner in which formal annual

evaluation has been made by the Board of its own

performance and that of its committees and individual

directors;

Section 178(2)- The Nomination and Remuneration Committee

shall identify persons who are qualified to become directors and

who may be appointed in senior management in accordance with

the criteria laid down, recommend to the Board their appointment

and removal and shall carry out evaluation of every director’s

performance.

SCHEDULE IV: CODE FOR INDEPENDENT DIRECTORS

II. Role and functions. (2) The independent directors shall bring

an objective view in the evaluation of the performance of

board and management;

V. Re-appointment: The re-appointment of independent

director shall be on the basis of report of performance

evaluation.

VII. Separate meetings:

(1) The independent directors of the company shall hold at

least one meeting in a year, without the attendance of

non-independent directors and members of management;

(2) All the independent directors of the company shall strive

to be present at such meeting;

(3) The meeting shall:

(a) review the performance of non-independent directors

and the Board as a whole;

A Guide to Board Evaluation

149

(b) review the performance of the Chairperson of the

company, taking into account the views of executive

directors and non-executive directors;

(c) assess the quality, quantity and timeliness of flow of

information between the company management and

the Board that is necessary for the Board to effectively

and reasonably perform their duties.

VIII. Evaluation mechanism:

(1) The performance evaluation of independent directors

shall be done by the entire Board of Directors, excluding

the director being evaluated.

(2) On the basis of the report of performance evaluation, it

shall be determined whether to extend or continue the

term of appointment of the independent director.

Rule 8 (4) of the Companies (Accounts) Rules, 2014

Every listed company and every other public company having a paid

up share capital of twenty five crore rupees or more calculated at

the end of the preceding financial year shall include, in the report by

its Board of directors, a statement indicating the manner in which

formal annual evaluation has been made by the Board of its own

performance and that of its committees and individual directors.

Main provisions under SEBI LODR with respect to Board

Evaluation

CHAPTER II:

4(2)(f)(ii) : Key functions of the board of directors- (9) Monitoring

and reviewing board of director’s evaluation framework.

Chapter IV:

17(10) : The performance evaluation of independent directors shall

be done by the entire board of directors:

Provided that in the above evaluation the directors who are subject

to evaluation shall not participate:

25 : (3) The independent directors of the listed entity shall hold at

least one meeting in a year, without the presence of non-independent

150

A Guide to Board Evaluation

directors and members of the management and all the independent

directors shall strive to be present at such meeting.

(4) The independent directors in the meeting referred in sub-

regulation (3) shall, interalia-

(a) review the performance of non-independent directors and

the board of directors as a whole;

(b) review the performance of the chairperson of the listed entity,

taking into account the views of executive directors and non-

executive directors;

(c) assess the quality, quantity and timeliness of flow of

information between the management of the listed entity

and the board of directors that is necessary for the board of

directors to effectively and reasonably perform their duties.

Schedule II (PART D) (A) ROLE OF NOMINATION AND

REMUNERATION COMMITTEE: Role of committee shall, inter-alia,

include the following:

(2) formulation of criteria for evaluation of performance of

independent directors and the board of directors;

(4) identifying persons who are qualified to become directors and

who may be appointed in senior management in accordance with

the criteria laid down, and recommend to the board of directors their

appointment and removal.

(5) whether to extend or continue the term of appointment of the

independent director, on the basis of the report of performance

evaluation of independent directors.

Schedule V: Corporate Governance Report. The following

disclosures shall be made in the section on the corporate governance

of the annual report.

(4) Nomination and Remuneration Committee:

(d) performance evaluation criteria for independent directors.

***

A Guide to Board Evaluation

151

Bibliography

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Principles and Recommendations, 2014

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152

A Guide to Board Evaluation

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***

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